Warren Buffett editorial in NYT: Buy American. I Am.(nytimes.com)
nytimes.com
Warren Buffett editorial in NYT: Buy American. I Am.
http://www.nytimes.com/2008/10/17/opinion/17buffett.html?_r=1&oref=slogin
61 comments
I could only find "I buy when other people are selling," but he did apparently make a killing during the Great Depression simply by buying stocks.
I thought this quote was terrific and really relevant to HN:
"Going to work for a large company is like getting on a train. Are you going sixty miles an hour or is the train going sixty miles an hour and you're just sitting still? "
There are a bunch of great quotes: http://www.linkrap.com/Getty
I thought this quote was terrific and really relevant to HN:
"Going to work for a large company is like getting on a train. Are you going sixty miles an hour or is the train going sixty miles an hour and you're just sitting still? "
There are a bunch of great quotes: http://www.linkrap.com/Getty
Found it. It's from "How to be Rich" which I finished last week (after getting a recommendation from another HN'er -- good book!)
(Regarding the May, 1962 Crash)
"I told them quite frankly that, while I sympathized wholeheartedly with anyone who had lost money because of market developments, I saw little if any reason for alarm and absoutely none for panic....I said I felt that the stock market was in a much healthier and certainly in a much more realistic position because of the long-needed adjustment in prices. As for what I was doing, the answer was simple. I was buying stocks...Most seasoned investors are doubtless doing much the same thing. They're snapping up the fine stock bargains available as a result of the emotionally inspired selling wave." [page 152]
Perhaps there's some difference this time around, but I doubt it. I imagine old J.P. would be saying the same thing today if he were alive.
(Regarding the May, 1962 Crash)
"I told them quite frankly that, while I sympathized wholeheartedly with anyone who had lost money because of market developments, I saw little if any reason for alarm and absoutely none for panic....I said I felt that the stock market was in a much healthier and certainly in a much more realistic position because of the long-needed adjustment in prices. As for what I was doing, the answer was simple. I was buying stocks...Most seasoned investors are doubtless doing much the same thing. They're snapping up the fine stock bargains available as a result of the emotionally inspired selling wave." [page 152]
Perhaps there's some difference this time around, but I doubt it. I imagine old J.P. would be saying the same thing today if he were alive.
Buffet is undoubtedly a great investor. But I have a slight feeling that could be doing this more for altruistic reasons rather than personal profit. He might believe that he can inject enough confidence in the system by his reputation then maybe he can help improve things. Not necessarily by enough for his investements to pay off but to avoid a worse fate for the financial system. Remember the guy has committed to giving away most of his fortune already. Anyway it is just a theory, good luck to him either way.
Clearly he wrote the essay to be altruistic. But I doubt very much that he's buying the stock to be. Buffett would never be so arrogant as to think that one person can affect the markets. The whole thing is infused with the sort of fatalism about markets that any successful investor learns to have.
Dude - Buffet didn't become the richest person in the WORLD by being altruistic. Think about it.
[citation needed] - he wasn't a crooked thief. There is a surprising lack of scandal surrounding him (i'm not one to care what consenting adults do in privacy.) He is a substantial philanthropist and value-based investor.
I'm not sure I understand how a lack of badness equals "making investment decisions based on altruism", or how they can be conflated in any way.
The way I'm reading the "debate" here is ca98am79 saying, "Buffett has no history of investing for altruistic reasons. He invests to make money, and is the most successful person in the world at doing so." And you're saying, "Stop calling Buffett a crook! He's a value investor and a philanthropist!"
He, obviously, didn't call Buffett a crook. He said that Buffett is a successful investor that invests to make money.
It's like two totally different conversations where both are true, but they aren't talking to one another.
The way I'm reading the "debate" here is ca98am79 saying, "Buffett has no history of investing for altruistic reasons. He invests to make money, and is the most successful person in the world at doing so." And you're saying, "Stop calling Buffett a crook! He's a value investor and a philanthropist!"
He, obviously, didn't call Buffett a crook. He said that Buffett is a successful investor that invests to make money.
It's like two totally different conversations where both are true, but they aren't talking to one another.
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Well he won't be the richest person in the world after he completes giving away 30 Billion of his money the the Bill and Melinda Gates Foundation either (if he is alive by then). He has stated he doesn't plan to pass on a significant share of his money to his children. Think about it.
I believe Buffett is always competing with Himself.
A word of caution: Don't invest if you can't sleep soundly at night. Buffet can probably afford to lose a few billions here and there, but you probably can't.
From what I recall of the last analysis on this subject, I don't think he has 'a few billion' in his non-Berkshire holdings. The non-Berkshire holdings are basically the money he has accumulated since personally buying Berkshire Hathaway, with his fairly modest salary. He has often described that he could (and does) beat Berkshire's ROI as a small investor, which is why his non-Berkshire holdings are in the millions.
His billions, from where his net worth for Fortune are calculated, is the 30+% ownership of Berkshire Hathaway (market cap today, 180B). The rest is almost a rounding error -- except that's where all of his lifestyle expenses come from, beyond his $100K salary and misc. payments, as he doesn't sell (as far as I know) any of his BH and it does not yield a dividend.
His billions, from where his net worth for Fortune are calculated, is the 30+% ownership of Berkshire Hathaway (market cap today, 180B). The rest is almost a rounding error -- except that's where all of his lifestyle expenses come from, beyond his $100K salary and misc. payments, as he doesn't sell (as far as I know) any of his BH and it does not yield a dividend.
About the dividends (http://www.focusinvestor.com/brkfaq.htm#Q7):
"We feel noble intentions should be checked periodically against results. We test the wisdom of retaining earnings by assessing whether retention, over time, delivers shareholders at least $1 of market value for each $1 retained. To date, this test has been met. We will continue to apply it on a five-year rolling basis. As our net worth grows, it is more difficult to use retained earnings wisely." Source: Berkshire Hathaway's Owner's Manual
Mr. Buffett:: "We will either pay large dividends or none at all if we can't obtain more money through re-investment (of those funds). There is no logic to regularly paying out 10% or 20% of earnings as dividends every year."
Charles Munger: "If you went to the leading schools, they wouldn't teach dividend policy this way." Source: My notes from the 2000 Berkshire Hathaway annual meeting
"We feel noble intentions should be checked periodically against results. We test the wisdom of retaining earnings by assessing whether retention, over time, delivers shareholders at least $1 of market value for each $1 retained. To date, this test has been met. We will continue to apply it on a five-year rolling basis. As our net worth grows, it is more difficult to use retained earnings wisely." Source: Berkshire Hathaway's Owner's Manual
Mr. Buffett:: "We will either pay large dividends or none at all if we can't obtain more money through re-investment (of those funds). There is no logic to regularly paying out 10% or 20% of earnings as dividends every year."
Charles Munger: "If you went to the leading schools, they wouldn't teach dividend policy this way." Source: My notes from the 2000 Berkshire Hathaway annual meeting
Keep meaning to make it to an annual meeting. I'm not sure if this year's circus will be better or worse.
Thank you for elaborating on the dividend comment. I certainly was not trying to imply that it was a negative. It just emphasizes that while Mr. Buffett may have as much money as anyone in the world, he does not have it in a private or liquid form outside of his role at Berkshire Hathaway. Like many growth of company-based Billionares (Gates, Bezos, etc), there is a great deal of transparency (an annual report!) in investment philosophy. Contrast with someone like Stephen Schwarzman.
Thank you for elaborating on the dividend comment. I certainly was not trying to imply that it was a negative. It just emphasizes that while Mr. Buffett may have as much money as anyone in the world, he does not have it in a private or liquid form outside of his role at Berkshire Hathaway. Like many growth of company-based Billionares (Gates, Bezos, etc), there is a great deal of transparency (an annual report!) in investment philosophy. Contrast with someone like Stephen Schwarzman.
Invest what you can afford to lose.
Another bit of advice: if you don't need your money for 20 years, you shouldn't lose sleep over short-term drops in the market. And if you are investing for the long run, you can afford to lose 50% of your portfolio today.
Well said. Most people should follow Mark Cuban's recent advice:
http://blogmaverick.com/2008/10/15/where-to-put-your-money-r...
http://blogmaverick.com/2008/10/15/where-to-put-your-money-r...
yeah but he is putting ALL of that billions into stocks (100%!), that is pretty damn aggressive for someone especially at his age. This is a huge aggressive move on his part, and if Warren Buffet - the richest guy in the world - is buying and thinks stocks are cheap, I personally would find it hard to sleep at night if I didn't do the same.
Read again. He is only doing that with his personal investments. It is not "billions".
Buffet owns about 27% of Bershire Hathaway. Berkshire Hathaway's market cap is $196 billion. 27% of $196 billion is $53 billion. Warren Buffet's estimated net worth is $62.3 billion - that means he has a little less than $10 billion for personal investments.
Had you followed that advice after the Japanese crash of 1990, you would still be down almost 75%:
http://finance.google.com/finance?q=^N225
http://finance.google.com/finance?q=^N225
He did not say 'buy an index fund'. In an average investing environment, the argument for buying the index and not individual stocks is sound. However, buying in this market -- and to take advantage of the blood on the street -- is the individual play. Many companies will not make it, or will not make it without massive restructuring, or with much lower market share. But for a value investor, some companies with real moats and real protection have now been priced (by the overall market) into value.
He's not saying buy stocks after any crash, just after this one. The Japanese crash was a unique one because a corrupt old boy network of companies holding one another's stock and banks refusing to write off bad debt caused the fall to be artificially prolonged.
Good point. And in Japan the government responded with massive public spending and rate reductions.
haha good one.
What do you think is happening now? The banks aren't willing to write off bad debt if they can stay afloat. As a result, they aren't willing to lend to each other. None of the banks wants to make a loan to another bank that will just go under due to their holdings of bad debt.
If the banks holding bad debt were allowed to fail, this would all be sorted out much faster.
If the banks holding bad debt were allowed to fail, this would all be sorted out much faster.
I bet he's gettin something on the side to basically step into the ring of fear here and fire the flare of "now's the time". I don't think people really dispute that now is the time. The problem is the view point.
You basically have to put money in and swear not to look at it again until 2013. Because the day by day view of that investment is heart attack unfolding as the bad news isn't going away, the affects of the 700 billion dollar crisis, job losses, sub prime this, abused and reckless that, and so on is going to be on the fear radar for a bit.
You whacked the consumer with $140 oil a few months back saying hard times are ahead, and then you backed it up with current credit crisis, and then you watched wallstreet get bought by the government as everyone in their money proceeded to get to cash as fast as they could. You've told the consumer to stop spending get back to basics and thats happening.
Folks in lots of cash, aka Buffet are in hog heaven right now. He can throw a bunch of money in, go back in cryogenic freeze with Elvis and pop back out in 2013 or so and bathe himself in cristal. Day traders hanging out with cash are making by the minute deals only to cash out and get back in on the highs and lows of the game, cautiously as they are, they are doing that.
If you have funds to play, play, or throw it in there and rent out buffets cryo chamber, probably a good bet really.
You basically have to put money in and swear not to look at it again until 2013. Because the day by day view of that investment is heart attack unfolding as the bad news isn't going away, the affects of the 700 billion dollar crisis, job losses, sub prime this, abused and reckless that, and so on is going to be on the fear radar for a bit.
You whacked the consumer with $140 oil a few months back saying hard times are ahead, and then you backed it up with current credit crisis, and then you watched wallstreet get bought by the government as everyone in their money proceeded to get to cash as fast as they could. You've told the consumer to stop spending get back to basics and thats happening.
Folks in lots of cash, aka Buffet are in hog heaven right now. He can throw a bunch of money in, go back in cryogenic freeze with Elvis and pop back out in 2013 or so and bathe himself in cristal. Day traders hanging out with cash are making by the minute deals only to cash out and get back in on the highs and lows of the game, cautiously as they are, they are doing that.
If you have funds to play, play, or throw it in there and rent out buffets cryo chamber, probably a good bet really.
I mostly agree. You have two choices with buying American stocks now: 1 - play the day trade game and squeeze out margins as the market is wild from day to day 2 - play long, buy great deals and hold for years.
The only people that can play option 1 well are serious traders that have tons of time, cash, and really know what they're doing (or just have dumb luck, but applies to anything you might do with money).
The only people that can play option 2 well are serious investors that have people that work for them to analyze which are best long term buys and mange them, oh yeah, and also have lots of cash on hand; cash you don't need to use a for a long time.
So although I do try to pay attention to when people like Buffet dish out advice, I also understand that few can play at his game.
The only people that can play option 1 well are serious traders that have tons of time, cash, and really know what they're doing (or just have dumb luck, but applies to anything you might do with money).
The only people that can play option 2 well are serious investors that have people that work for them to analyze which are best long term buys and mange them, oh yeah, and also have lots of cash on hand; cash you don't need to use a for a long time.
So although I do try to pay attention to when people like Buffet dish out advice, I also understand that few can play at his game.
Aren't the people who play game number 1 largely responsible for the current financial mess? Maybe not day traders per se, but that sort of mentality of everyone thinking they are in the top few percent of investors and able to beat the market.
No, because this time it's not a stock market bubble that burst. It's a credit bubble caused by very low interest rates. You could say that the stock market bubble of 2000 lead to the low interest rates, but it's not true. Money supply has sharply increased in the US since the 1980s. Now it's payback time for a few years I'm afraid.
not really; that is leveraged buying. I'm talking about only buying things you actually have the cash to pay for.
Number 1 is idiotic. Historically, investors who hold shares for more than 6 months get 9 times the returns of investors who churn on a short term basis. Furthermore, there is no way to predict how stocks will behave in the short term. In the long term, we can be reasonably certain that they will appreciate. In the short term, we have no idea. Furthermore, if you are not an institutional investors, federal income taxes of ~35%, and stockbroker fees will absolutely obliterate you and if you are a institutional investor, you have too much money to be able to day trade. The only people who ever try #1 are the ones who have no clue what they are doing and usually end up broke. They need to read The Intelligent Investor by Graham.
yes, number 1 is idiotic, for me and for most others.
The second route also doesn't work real well for most small investors that don't have a team to constantly analyze what are the best long term holds. My point is simply that I do listen to Buffet's advice and haven't disagreed with him. Its just that most cannot play the game in the same way he can.
Most small investors can only afford to allow large companies to manage a portfolio for them (normal 401k fund management companies). Look at the current balance sheet of these folks. They are destroyed. The fund companies didn't take care of them. Have you heard of any fund company that sent messages to their small 401k customers telling them "hey, you need to redistribute your portfolio NOW!!! Its what Buffet is doing. Then in a year or so, we'll take all that cash we switched you into and buy stocks again when the market is low". Hell no. I'm not saying the management companies are completely out of line for not taking care of the little guy. What I am saying is the little guy can't ever expect that kind of treatment. It all means that only a few get to actually partake in Buffet's wisdom.
The second route also doesn't work real well for most small investors that don't have a team to constantly analyze what are the best long term holds. My point is simply that I do listen to Buffet's advice and haven't disagreed with him. Its just that most cannot play the game in the same way he can.
Most small investors can only afford to allow large companies to manage a portfolio for them (normal 401k fund management companies). Look at the current balance sheet of these folks. They are destroyed. The fund companies didn't take care of them. Have you heard of any fund company that sent messages to their small 401k customers telling them "hey, you need to redistribute your portfolio NOW!!! Its what Buffet is doing. Then in a year or so, we'll take all that cash we switched you into and buy stocks again when the market is low". Hell no. I'm not saying the management companies are completely out of line for not taking care of the little guy. What I am saying is the little guy can't ever expect that kind of treatment. It all means that only a few get to actually partake in Buffet's wisdom.
Buffett is managing Berkshire Hathaway, which manages other people's investments. If you believe in his strategy, buy into his fund, don't try to imitate him.
Not necessarily. Berkshire's stock price is based on how well other people think Buffett manages money. And his reputation is pretty darn good right now.
There've been times - like 1998 - when Berkshire stock was very much overvalued, and you'd be better off imitating Buffett than buying him. Hell, back then, Buffett thought Berkshire stock was overvalued, and got rid of $20B of it in buying General Re. If Berkshire is selling Berkshire stock, it's probably a good sign that you should be imitating and not buying in.
...however, I don't think now is one of those times.
There've been times - like 1998 - when Berkshire stock was very much overvalued, and you'd be better off imitating Buffett than buying him. Hell, back then, Buffett thought Berkshire stock was overvalued, and got rid of $20B of it in buying General Re. If Berkshire is selling Berkshire stock, it's probably a good sign that you should be imitating and not buying in.
...however, I don't think now is one of those times.
Unfortunately you can't imitate him with high accuracy the way you could with an ETF since they have a number of wholly-owned subsidiaries. That's also what allows their stock to get out of alignment with market value of their holdings.
You can get a good idea of whether Buffett thinks Berkshire is undervalued or overvalued by whether he uses cash or stock for acquisitions, though. When the stock is overvalued, he'll trade overvalued Berkshire stock for undervalued other stocks. When the stock is undervalued or fairly-valued, he'll use cash for the purchase.
Everything recent has been done with cash, AFAIK.
Everything recent has been done with cash, AFAIK.
Yeah, that's true. I just wish you could imitate him like an EFT.
As Buffet has mentioned himself, Berkshire has a serious disadvantage compared to a small investor: tons of cash, meaning it only makes sense to make huge bets thus limiting its choices.
I wouldn't buy equity or debt at this point. There are companies with massive equity holdings who have bought credit default swaps to hedge against various losses. The CDS market is worth around 800 trillion at this point. Most of these contracts will work out without causing problems.
That being said, the last plunge came a day after the settlement of Fannie & Freddie for roughly 90 cents on the dollar. We do not know how much of a factor this was because we do not know whether the parties selling stock were cashing out to cover CDS liabilities. We do know that the contracts covering debt held by Lehman Bros are due to be settled later this month for about 10 cents on the dollar. Someone somewhere is going to eat major losses. It will be a good sign if we get to November without another plunge.
When this debt gets settled though, someone somewhere will have to sell assets to cover their debts. Assuming everyone is properly and responsibly hedged we shouldn't have major issues. But... uh.... 800 trillion is a pretty big number, and the incentive for CDS providers was clearly to gamble: take short-term payments in exchange for bearing risk and hoping you never have to pay up.
Frankly, if I had any US assets at this point I'd convert them into Australian holdings. The exchange rate phenomenal at this point and the shift will insulate against the coming crash of the US dollar. Things are worse than people imagine.
That being said, the last plunge came a day after the settlement of Fannie & Freddie for roughly 90 cents on the dollar. We do not know how much of a factor this was because we do not know whether the parties selling stock were cashing out to cover CDS liabilities. We do know that the contracts covering debt held by Lehman Bros are due to be settled later this month for about 10 cents on the dollar. Someone somewhere is going to eat major losses. It will be a good sign if we get to November without another plunge.
When this debt gets settled though, someone somewhere will have to sell assets to cover their debts. Assuming everyone is properly and responsibly hedged we shouldn't have major issues. But... uh.... 800 trillion is a pretty big number, and the incentive for CDS providers was clearly to gamble: take short-term payments in exchange for bearing risk and hoping you never have to pay up.
Frankly, if I had any US assets at this point I'd convert them into Australian holdings. The exchange rate phenomenal at this point and the shift will insulate against the coming crash of the US dollar. Things are worse than people imagine.
All respect to Buffet in his success and this op-ed's general message. But its simplicity reminds me of George Bush's call to "go shopping" after 9/11. Do you want to overcome fear and build America's future? Then entrepreneurs lets get building. If you don't have the self-esteem to invest in your own efforts (we need them now more than ever) then follow Buffet's advice and buy a slice of the companies that will rebuild America. If you have the chutzpah though, don't "go shopping," "get building."
I have a huge amount of respect for Buffet and this article has some sound advice. But, I still don't understand if it applies only to stocks or to anything US. This sentence (2nd paragraph) "I've been buying American stocks. This is my personal account I'm talking about [...]" sounds like, I've done my share in helping out by buying equity and [I imply] you see how you do yours with buying whatever US. Correct me if I'm wrong.
Buffett was heavily invested in the Euro. When the stock market crashed he simply took his Euro's, cashed them in for dollars, and bought US Assets that were down. Most regular US citizens were invested at the top of the market and just can't afford to go buy more.
Don't forget that Buffett now has billions of dollars riding on the recovery of American stocks. His motives for releasing this aren't all patriotic, are they?
Goldman Sachs has negative Operating Cash Flow (-$14.57 billion)
http://finance.yahoo.com/q/ks?s=GS
And Buffett brought $5 billion worth preferred stock of GS.
Is this a rational investment?
And Buffett brought $5 billion worth preferred stock of GS.
Is this a rational investment?
Stock markets oscillate between Facts, Hope and Hype.
This is exactly why I would wait. Words from Buffet will reduce fear in the market. I'd rather invest when fear is at a maximum (eg, next bad quarterly report, or bad economic numbers).
Short summary:
"Time to talk up the market. I have already placed the money I wanted to place while it was down." :)
It's good to be skeptical when reading commentaries, but it's better, when you're skeptical, to make more of a case than simply a slogan.
As I recall, Buffett went heavily into precious metals and bonds over the past few years. Now he's puling that money out and going to the market. Everybody else is buying precious metals because they're scared and selling their stocks. Looks damn smart to me.
As I recall, Buffett went heavily into precious metals and bonds over the past few years. Now he's puling that money out and going to the market. Everybody else is buying precious metals because they're scared and selling their stocks. Looks damn smart to me.
Not merely nasty, but false as well. He says explicitly that he hasn't finished buying.
Uh.... How does what he say prove what he will do? If he were being dishonest here, maybe he would be... I dunno, dishonest?
I personally have no idea what Buffett's really thinking, but maybe you left some points out of your argument there?
I personally have no idea what Buffett's really thinking, but maybe you left some points out of your argument there?
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Excellent advice.
Buffett walks in great footsteps here. Wasn't it J.P. Getty that came out during the depression and said something like "Buy stocks. We're buying as much as we possibly can." ( I paraphrase from memory here)