[floozyspeak]

I bet he's gettin something on the side to basically step into the ring of fear here and fire the flare of "now's the time". I don't think people really dispute that now is the time. The problem is the view point.

You basically have to put money in and swear not to look at it again until 2013. Because the day by day view of that investment is heart attack unfolding as the bad news isn't going away, the affects of the 700 billion dollar crisis, job losses, sub prime this, abused and reckless that, and so on is going to be on the fear radar for a bit.

You whacked the consumer with $140 oil a few months back saying hard times are ahead, and then you backed it up with current credit crisis, and then you watched wallstreet get bought by the government as everyone in their money proceeded to get to cash as fast as they could. You've told the consumer to stop spending get back to basics and thats happening.

Folks in lots of cash, aka Buffet are in hog heaven right now. He can throw a bunch of money in, go back in cryogenic freeze with Elvis and pop back out in 2013 or so and bathe himself in cristal. Day traders hanging out with cash are making by the minute deals only to cash out and get back in on the highs and lows of the game, cautiously as they are, they are doing that.

If you have funds to play, play, or throw it in there and rent out buffets cryo chamber, probably a good bet really.

[jhancock]

I mostly agree. You have two choices with buying American stocks now: 1 - play the day trade game and squeeze out margins as the market is wild from day to day 2 - play long, buy great deals and hold for years.

The only people that can play option 1 well are serious traders that have tons of time, cash, and really know what they're doing (or just have dumb luck, but applies to anything you might do with money).

The only people that can play option 2 well are serious investors that have people that work for them to analyze which are best long term buys and mange them, oh yeah, and also have lots of cash on hand; cash you don't need to use a for a long time.

So although I do try to pay attention to when people like Buffet dish out advice, I also understand that few can play at his game.

[jimbokun]

Aren't the people who play game number 1 largely responsible for the current financial mess? Maybe not day traders per se, but that sort of mentality of everyone thinking they are in the top few percent of investors and able to beat the market.

[fauigerzigerk]

No, because this time it's not a stock market bubble that burst. It's a credit bubble caused by very low interest rates. You could say that the stock market bubble of 2000 lead to the low interest rates, but it's not true. Money supply has sharply increased in the US since the 1980s. Now it's payback time for a few years I'm afraid.

[jhancock]

not really; that is leveraged buying. I'm talking about only buying things you actually have the cash to pay for.

[newt0311]

Number 1 is idiotic. Historically, investors who hold shares for more than 6 months get 9 times the returns of investors who churn on a short term basis. Furthermore, there is no way to predict how stocks will behave in the short term. In the long term, we can be reasonably certain that they will appreciate. In the short term, we have no idea. Furthermore, if you are not an institutional investors, federal income taxes of ~35%, and stockbroker fees will absolutely obliterate you and if you are a institutional investor, you have too much money to be able to day trade. The only people who ever try #1 are the ones who have no clue what they are doing and usually end up broke. They need to read The Intelligent Investor by Graham.

[jhancock]

yes, number 1 is idiotic, for me and for most others.

The second route also doesn't work real well for most small investors that don't have a team to constantly analyze what are the best long term holds. My point is simply that I do listen to Buffet's advice and haven't disagreed with him. Its just that most cannot play the game in the same way he can.

Most small investors can only afford to allow large companies to manage a portfolio for them (normal 401k fund management companies). Look at the current balance sheet of these folks. They are destroyed. The fund companies didn't take care of them. Have you heard of any fund company that sent messages to their small 401k customers telling them "hey, you need to redistribute your portfolio NOW!!! Its what Buffet is doing. Then in a year or so, we'll take all that cash we switched you into and buy stocks again when the market is low". Hell no. I'm not saying the management companies are completely out of line for not taking care of the little guy. What I am saying is the little guy can't ever expect that kind of treatment. It all means that only a few get to actually partake in Buffet's wisdom.

[gaius]

Buffett is managing Berkshire Hathaway, which manages other people's investments. If you believe in his strategy, buy into his fund, don't try to imitate him.

[nostrademons]

Not necessarily. Berkshire's stock price is based on how well other people think Buffett manages money. And his reputation is pretty darn good right now.

There've been times - like 1998 - when Berkshire stock was very much overvalued, and you'd be better off imitating Buffett than buying him. Hell, back then, Buffett thought Berkshire stock was overvalued, and got rid of $20B of it in buying General Re. If Berkshire is selling Berkshire stock, it's probably a good sign that you should be imitating and not buying in.

...however, I don't think now is one of those times.

[mattmaroon]

Unfortunately you can't imitate him with high accuracy the way you could with an ETF since they have a number of wholly-owned subsidiaries. That's also what allows their stock to get out of alignment with market value of their holdings.

[nostrademons]

You can get a good idea of whether Buffett thinks Berkshire is undervalued or overvalued by whether he uses cash or stock for acquisitions, though. When the stock is overvalued, he'll trade overvalued Berkshire stock for undervalued other stocks. When the stock is undervalued or fairly-valued, he'll use cash for the purchase.

Everything recent has been done with cash, AFAIK.

[mattmaroon]

Yeah, that's true. I just wish you could imitate him like an EFT.

[tyn]

As Buffet has mentioned himself, Berkshire has a serious disadvantage compared to a small investor: tons of cash, meaning it only makes sense to make huge bets thus limiting its choices.

[trevelyan]

I wouldn't buy equity or debt at this point. There are companies with massive equity holdings who have bought credit default swaps to hedge against various losses. The CDS market is worth around 800 trillion at this point. Most of these contracts will work out without causing problems.

That being said, the last plunge came a day after the settlement of Fannie & Freddie for roughly 90 cents on the dollar. We do not know how much of a factor this was because we do not know whether the parties selling stock were cashing out to cover CDS liabilities. We do know that the contracts covering debt held by Lehman Bros are due to be settled later this month for about 10 cents on the dollar. Someone somewhere is going to eat major losses. It will be a good sign if we get to November without another plunge.

When this debt gets settled though, someone somewhere will have to sell assets to cover their debts. Assuming everyone is properly and responsibly hedged we shouldn't have major issues. But... uh.... 800 trillion is a pretty big number, and the incentive for CDS providers was clearly to gamble: take short-term payments in exchange for bearing risk and hoping you never have to pay up.

Frankly, if I had any US assets at this point I'd convert them into Australian holdings. The exchange rate phenomenal at this point and the shift will insulate against the coming crash of the US dollar. Things are worse than people imagine.

[newt0311]

Indeed 800 trillion is a big number. So big that I would check your sources if I were you.

[trevelyan]

You're right. My numbers are off by an order of magnitude. I guess we'll see where we stand in late November then.