What’s Buffett Buying?

From the desk of Paul Nichols: President of Financial Abundance Inc.

In a recent article Warren Buffett wrote:

“THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. 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.

Why?

A simple rule dictates my buying: Be fearful when others are greedy; and greedy when others are fearful.”

The best explanation for Mr. Buffett’s outlook is he is investing based on the belief that all though business will suffer hiccups, as they always have, many may be setting new profit records five ten and twenty years from now. He believes that the majority of American companies will bounce back eventually. This way he is buying stocks while they are on sale, he says “It lets you buy a slice of America’s future at a marked-down price.” While it is impossible to know what the stock market will do in the short term, there is a vast history that suggests it will grow (substantially) over the long term, and that is why he is employing this strategy.

Mr. Buffett says “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.””