The Oracle of Omaha Speaks

A few weeks back, Warren Buffet ended Bill Gates’ decade long hold on the title of World’s Richest Person when Forbes Magazine estimated his net worth at $62 billion compared to Gates’ $58 billion. Gates actually fell to third place just behind Carlos Slim Helú who as Mexico’s telecommunications czar, has amassed $60 billion.

While everyone who pays attention to this sort of thing already knows that these guys have a lot of coin, it was a little article tucked into last Friday’s New York Times that made some heads turn. After several weeks of seemingly daily record losses on the global markets with American exchanges particularly hard hit, Warren Buffet wrote an op-ed piece that stated emphatically in the title of the article “Buy American. I Am”.

Buffet does preface the article by saying that this approach is exclusively for his personal account and not necessarily the direction that his famous Berkshire Hathaway fund will be taking. Up until now, he notes that his own account has consisted exclusively of U.S. government bonds but he has recently been buying U.S. equity stocks and states that if bargain prices continue, his own non-Berkshire net worth will “soon be 100 percent in United States equities”.

He bases this approach on one of his more famous sayings – and this from a man who has a wealth of well-known homilies – Be fearful when others are greedy, and be greedy when others are fearful. And there can be no doubt that investors are – among many things right now – fearful.

To be sure, investors are right to be wary of highly leveraged entities or businesses
in weak competitive positions. But fears regarding the long-term prosperity of the
nation’s many sound companies make no sense. These business will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records, five, ten, and twenty years from now.

– Warren Buffet
October 17, 2008 – New York Times

In truth, Buffet’s article isn’t exactly breaking news as Berkshire has been very active lately. In September, the fund bought a $10 billion stake in Goldman Sachs as part of the firm’s drive to raise capital; Berkshire also scooped up $3 billion worth of GE stock, and has made several other high-profile moves. Ultimately, the most important commodity in any market is confidence and Buffet – despite all the doom and gloom – is confident that there are real bargains available right now.

“I can’t predict the short-term movement of the stock market,” he notes in the New York Times article. “What is likely,” he adds, “is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up.”

Will Buffet’s vote of confidence be enough to bring others on board? Few would dispute the logic – it’s just the timing that some may question. With very little positive news out there, many still wonder how far we have yet to go before we get past the worst of this crisis.

On this point, we will give Mr. Buffet the last word. Regarding the timing of a recovery and the optimal point for buying – and in true under-stated Buffet style – he warns simply that “if you wait for the robins, the spring will be over”.

The Oracle of Omaha has spoken.

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