Warren Buffett Speaks

Buffett enjoying a Peanut Buster Parfait.

Warren Buffett has another op-ed in the NY Times. This one is titled The Greenback Effect. It’s a well written piece and I encourage you all to read it. It’s worth your time. The basic point of the article is that although the stimulus was initially necessary, the US needs to make its spending more sustainable or the dollar is going to suffer. Completely logical, and it’s nothing that people are saying in coffee shops all over the country. Buffett saying it doesn’t make it any more true – but it makes it more likely that people who can do something about it will listen (case in point). Plus, it’s fun to see a NY Time article with his name on it. I’m not sure there’s anyone they could get to write for them whose opinions I’d be more interested in (though he isn’t the only big name that’s been writing opinion pieces for them lately).

Seeing this piece brought to mind the piece that Buffett wrote in the NY Times last October, urging us to buy American in the midst of an economy that was flailing. Anytime you hear Buffett say anything about the direction of markets, he’ll tell you that he can’t predict the short term gyrations of the market. He doesn’t think anyone else can, either (who am I to disagree?). He doesn’t try to predict the short term direction of markets in this piece, either.

The piece was, in part, simply an attempt to calm people’s fears. In The Intelligent Investor, Benjamin Graham personifies the market as being a moody fellow – swinging from extreme euphoria (Greenspan might call it irrational exuberance) to extreme depression. Buffett’s article was an attempt to keep that depression in perspective. I think the other reason for the article was honest, sincere long term optimism in America. Part of the reason for Buffett’s optimism comes from his personality. It’s part of what makes him such a patient investor.

Clearly, Buffett’s vote of confidence was directed at toward the long term direction of the markets. I thought it might be fun (and hopefully useful in some way) to look at what the markets have done since his article. Hint: things got much worse before they got better.

First, the overall performance. The S&P 500 closed at 996.46. The piece ran on October 16th. On October 15th, the S&P sat at 907.84. Since Buffett’s prediction ran, the market is +9.76%. Of course, things got worse before they got better. On March 9th, 2009, the market closed at 676.53. If you had invested your money on that day, you’d be +47.29%. Buffett’s call wasn’t an attempt to time the market. He was simply saying what he always says, when there’s blood on the streets, that’s usually the time to invest. Overall, we’re still in the short term. When Warren says you should Buy American, he just means that eventually (10, 15, 20 years) down the road, you’ll be glad you put your money to work.

I’m not advocating anything, here, just thought I would toss out some numbers in retrospect. I have no idea what the markets will do going forward. If you’ve been investing during this downturn, you’re probably in the black. Buffett’s famous saying – be greedy when others are fearful and fearful when others are greedy has proven (again!) to be very true. On March 9th, people were pretty fearful. Hopefully you were buying hand over fist. Thanks for reading.