Warren Buffet calls a buy but won’t define bottom

19 October 2008

undefined

Mr Warren Buffett – known as the "Sage of Omaha" or the "Oracle of Omaha" for his ability to pick the right time to invest in situations – admitted that he has begun to use some of his $62bn fortune to invest in the shares of American companies.

"Buy America, I am!" was his bold call last week. Not as boldly arrogant as Jim Cramer, he does not attempt to call a market bottom, and freely admits that he does not know in which direction the markets are headed in the short-term. He is a humble person that states that he cannot predict these things with precision.

In 1974, during an interview in Forbes magazine, he made a very stark public prediction, calling the bottom of the bear market and the markets rallied 15% before his interview even hit the press.

His record for picking winners is well documented, and Berkshire has averaged an annual return to shareholders of more than of 21pc for each of the last 42 years.

Recently, he invested $10bn of Berkshire's money into Goldman Sachs' preferred stock, for which his company will receive a healthy dividend payment and very little downside.

Buffett's optimism is based primarily on the following:

"Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors."
Cash is trash. "Today people who hold cash equivalents feel comfortable," he writes. "They shouldn't. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value."

A few caveats to Buffett's dramatic call:

By his own admission, Buffett is making a long-term call. "I can't predict the short-term movements of the stock market," he writes. "I haven't the faintest idea as to whether stocks will be higher or lower a month — or a year — from now.
In the short- to intermediate-term, there's still the issue of reviving the banking sector, and key bank CEOs like JPMorgan's Jamie Dimon have expressed little optimism for the Treasury's program of capital injection.
Nobody, not even Warren Buffett, is always right.
At DJIA 10K or even 11k, a lot of people were already coming out to say, "buy when there is blood on the streets!"

SOME OF HIS PAST CALLS AND HISTORY

1941: At eleven years old, Warren buys his first stock. He purchases 6 shares of Cities Service preferred stock [3 shares for himself, 3 for his sister, Doris], at a cost of $38 per share. The company falls to $27 but shortly climbs back to $40. Warren & Doris sell their stock. Almost immediately, it shoots up to over $200 per share.

Late in 1969, when he was 39, he called it quits on the market. He liquidated his money management pool, Buffett Partnership, Ltd., and gave his clients their money back. Before that, in good years and bad, he had been beating the averages, making the partnership grow at a compounded annual rate of 30% before fees between 1957 and 1969. (That works out to a $10,000 investment growing to $300,000 and change.)

He quit essentially because he found the game no longer worth playing. Multiples on good stocks were sky-high, the go-go boys were "performing" and the list was so picked over that the kind of solid bargains that Buffett likes were not to be had. He told his clients that they might do better in tax-exempt bonds than in playing the market. "When I got started," he says, "the bargains were flowing like the Johnstown flood; by 1969 it was like a leaky toilet in Altoona." Pretty cagey, this Buffett. When all the sharp MBAs were crowding into the investment business, Buffett was quietly walking away.

Nov 1 1974 "now is the time to invest and get rich," he says in a Forbes interview.

11/1/1974 close 665.28
12/9/1974 closed 579.9 (lower by 12.8% more after call)
07/19/1975 closed 872.11 (higher by 31% after call)
09/22/1976 closed 1014 (higher by 52.4% after call)

Aug 6 1979 "those awaiting for a better time in equity investing are highly likely to maintain that posture until well into the next bull market," again stated in a Forbes piece.

08/6/1979 close 848
04/21/1980 close 759 (lower by 10.4% after the statement)
04/27/1981 close 1024 (higher by 20% from time of statement)

Nov 22 1999 "investors in stocks these days are expecting way too much," talking about the Tech Bubble in Fortune Magazine.

11/22/1999 nasdaq close 3392.56
03/10/2000 close 5048 ( 48% more from call)
10/07/2002 close 1119 (67% drop from time of call, 77% drop from high)

CNBC's Fast Money Reader Poll asks if Buffett's decision to buy stock in American companies makes you more interested in them. As of mid-evening and 1716 responses, 68 percent said, "Yes, it's like giving them a seal of approval." Thirty-two percent went with, "No, Buffett only ever does what's best for Buffett."

Share and Enjoy: