Warren Buffett Op-Ed Explains Why He Is Buying, Not Selling

Warren Buffett’s Op-Ed in the New York Times today is a must read. He echoes many of the same thoughts I offered in my quarterly letter to clients last week, but don’t take it from me, the Oracle of Omaha feels the same way.

You can read the full piece here:

Some highlights:

In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary. So… I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

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3 Thoughts on “Warren Buffett Op-Ed Explains Why He Is Buying, Not Selling

  1. Anonymous on October 17, 2008 at 11:43 AM said:

    Who is this guy Buffett. Is he any good? never heard of him.

  2. Anonymous on October 18, 2008 at 7:32 AM said:

    Not to argue with Buffet…but there’s something important missing in his advice…something perhaps natural to him, but not to most of us.

    In a portfolio which was part cash equivalents and part stocks the cash apparently held up much better throughout the recent events.

    Now you and Buffet advocate to move the cash to the stocks because we expect them to blossom.

    Only neither of you says how much worse it could get before it gets better and – more importantly –
    what is the sanitary minimum for the cash pile considering the near future.

    What’s a good cash/stocks ratio in times like these?

  3. Chad Brand on October 18, 2008 at 9:17 AM said:

    Of course cash holds up better in bear markets than stocks do. Buffett wrote that stocks would “almost certainly” outperform cash over the next decade. Thereforem, if prices remain low, he would hold no cash and put his entire personal account into stocks.

    Asset allocation (stocks, bonds, cash, etc) depends on one’s time horizon. Neither of us said how much worse it could get before it gets better because we don’t know. The short-term in unknowable.

    What we do know is that history tells us that stocks at current valuations provide returns that exceed other asset classes over a 5-10 year period of time. So, cash is a bad option for long term investors.

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