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Why Isn’t Warren Buffett Saying This Now?

July 9, 2014

Image source - Biography.com

Ever since I met with Mr Warren Buffett in 2004, my respect for him has been growing by leaps and bound, year after year. Even though I have read many major books written about him, there is nothing quite like meeting in person. I consider him my mentor, someone, who has always inspired me from investing perspective ever since I was kid.

A very famous quote Mr Buffett is the following-

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful” – Warren Buffett

Wise words indeed!!

And the worth of those words was again proven right in late 2008 when Mr Buffett announced  “BUY AMERICAN. I AM”  via an Op-Ed in NY Time in Oct 16 2008. I read it too with lot of enthusiasm. In Fact, as long time OPN members may recall, we started preparing for bull market on Oct 14, 2008, just two days before that OP-ED (just a pure coincidence). I shared a list of stocks, with target valuations and purchase prices with Margin of Safety built in. The sheet is still there, if you are an OPN Member, find it here.

Just like what Mr Buffet said-

I can’t predict the short-term movements of the stock market. 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.

There was further weakness in the markets (which means one could have purchased stocks even cheaper than his purchase price), but since then S&P has more than doubled. That was an advice that must have produced fortunes for many.

That was then in 2008. How about now and going forward when Dow is at 17,000 and S&P almost 2,000?

Based on the same famous quote, we have two choices now..

  1. Are people still FEARFUL >>> So should we continue to be GREEDY ? or
  2. Are people GREEDY now >>> So should we be FEARFUL?

Buying cheap was a good idea, in fact a fortune making, once in a decade opportunity. SELLING is different. You will have to decide it for yourself because I don’t think we are ever going to see an Op-Ed that will say SELL AMERICAN. I AM; Markets moves in CYCLES and in between there are TRENDS. You will have to decide for yourself when is your entry or exit. No one has better interest in it but you.

So while thinking about Buying/Selling/Timing etc, I tried to recall other wise words, here is what I remember >>

  1. Know what’s the security is worth AND
  2. Know when is it worth buying

By “when”>> he was not referring to technical charts but more so from a long term investor’s perspective who understand the business, numbers and the concept of margin of safety. So if you are struggling with decision to buy or sell, go find hard facts, revisit your assumptions, your calculations behind what the security is worth and then decide for yourself if it is time that you should sell or buy more. It’s your hard earned money and you don’t want to leave it for “chance” or “speculation”..

Profitable Trading, OP

What is your opinion about current state of markets? Kindly leave your questions/thoughts/comments in the comments section. I will respond within 24-48hrs!!

(Disclaimer– The words I quote here are my interpretation of his teachings and is by no means endorsed by Mr Buffett. I might have understood it right or wrong, but whatever it is, that’s my interpretation. I have very high regard from Mr Buffett. You should not buy or sell based on above. Consult your financial adviser and do your own due diligence before making any investment decision).

4 Comments

  • Sebby says:

    Hey Option, great article. I find myself being a little more fearful now with the way things are with job security, cost of living rising it seems like everyday, I do not want to lose the nice gains from investing in stocks and mutual funds from past couple of years. Currently, I have been about 80% out of the market, but still taking part in market by investing in GOLD. I shifted 100% of my 401K money from part time job from where they were into VG gold fund, I find it hard to day trade (stocks, etf’s) daily while working. Trading is a job its self and trying to get ahead a little bit, to make a little extra income, is a challenge each and every week. When I using your service, I did not always have computer access or email access for your alerts, so I could not take 100% advantage of your service you provided. Now, I have computer access at work and email access (with my phone) and I hope to join your service soon and once again have a chance to take part of the incredible service you provide. Keep up the good work and thank you for all your insight and information.

    Happy training
    Sebby

  • OptionPundit says:

    @Sebby,

    Thank you for your encouraging words. I appreciate it.
    Yes, trading is not an easy task, especially in the current markets. Gold won’t be immune too….Having said that, I still think it is important to safeguard your hard earned money. A simple analogy I like to give >>> do you spend as much time to protect your $1 as much as you do to earn it? >>> if not, it is a good idea to find ways to do it. No one is going to care much about our money…we’ll not bailed-out…

    There are plenty of opportunity too..but again..as Mr Buffett like to say…”Know what you are doing”…

    Have a great day and profitable trading, OP

  • Valuation ratios are a useful long-term evaluation tool. The Greekbackd blog has some pretty useful information on that topic:
    http://greenbackd.com/

    Momentum is useful as an intermediate-term timing tool (3 to 12 months). More information here:

    Moving averages
    http://marketsci.wordpress.com/2010/06/30/trading-the-golden-cross/

    Relative momentum
    http://gestaltu.com/2014/03/half-life-of-optimal-lookback-horizon.html

    Paper by Cliff Asness on relative momentum
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2435323

  • OptionPundit says:

    As I was reading an article on Forbes by Brilliant Chole >> http://www.forbes.com/sites/chloesorvino/2014/07/09/the-families-that-warren-buffett-made-super-rich/

    The article offered an interesting insight/ idea >> why not invest in BRK itself; and how about hedging it against/ beyond a certain drawdown, or develop a laddering hedging approach…

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