he makes three central points, which are old news to anyone familiar with mr. buffet's investment philosophy: - investors should buy when there is fear in the markets, and there is plenty of fear now
- financial markets recover earlier than the economy itself
- it is impossible to predict the short term future of the market
he therefore has started buying stocks, and will continue to do so as long as conditions remain fearful.
now i'm trouble. only a few days ago i projected that the dow will go to 4000, and now the sage of omaha is saying "buy". even if my prediction turns out to be wrong though, there is so much more bad news, and so much more downside to economic fundamentals in the pipeline, that i believe it is perfectly fine to wait. in addition, when mr. buffet says he's started buying, that means he has allocated a small portion of his portfolio to stocks, probably in the vicinity of 5%, the rest remaining in cash equivalents. now that might not be a bad idea. the value of that small portion might drop by another 50%, but viewed over 5 or 10 years it will still have been a bargain.
does that mean we are out of the woods already? i don't think so.
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I agree that we are not out of the woods yet and also that WB's view on "buy now" needs to be put in context of his fortune.
On your final comment - i.e. 5-10 years down the road your investment will be good, I guess that no matter if you buy stocks or houses, as long as you have a long term view, you will be fine. The only thing you should not do is to think that you are smarter than everyone else and chase those "heavily" undervalued stocks, because they don't exist in a close to perfect market.
Adding to your comment on not being out of the woods, I think it will be interesting to see how the world looks like on the other side of the woods. I don't think that we will see the same local piece of wood as before. I think that we will experience a new version where we have palm trees next to spruces - i.e. we will see a globalized wood/economy. There is no denying that the financial crisis has show how interrelated global economies are, and the solution to be found is most likely also going to be a global one.
This financial crisis has really put globalization on fast forward... Interesting!
believe you are spot on on the global solution required for a global crisis. china and india are overdue as members of the g7.
however, long term is a relative concept. the price to pay for ignoring reality can be high, depending on the level of ignorance displayed leading to the crisis. if you had bought an index fund on the japanese stock market in 1984, it would be worth less today. the nikkei back then stood at 10,000, then went to 40,000 in 6 years on the back of a real-estate boom, and closed yesterday at 8,195.
if you bought at the top of the market, you may never get back your money in your lifetime.
anyone having completed primary school could have done the analysis of fundamentals at the time, showing that the market had lost its mind. the slow response of the bank of japan at the time contributed to the melt-down, which is at least one mistake we seem not to have repeated.
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