Buffett Likes to Be Early; Don't Rush to Follow 32 comments
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Warren Buffett wrote an op-ed in the New York Times last week, announcing that he's selling US bonds in his personal account and buying American stocks. Equities will outperform cash in the next ten years, he says. Naturally, everyone's excited.
In investing, Buffett says he follows Wayne Gretzky's advice: "I skate to where the puck is going to be, not where it has been." A perhaps better analogy of Buffett's investing style is getting to a New York City subway station before the train arrives. Unlike Gretzky's puck, which takes a second or two to get to where the hockey great expects it, the wait for an MTA subway train can take hours. Buffett gets to the subway station extra early (some of his recent stock purchases):
NRG Energy (NRG)
Bought: $40 to $44.43 a share
Last close: $18.18
Sanofi-Aventis (SNY)
Bought: $32.32 to $38.04 a share
Last close: $29.08
Burlington Northern (BNI)
Bought: $76.65 to $91.99 a share
Last close: $80.47
Kraft (KFT)
Bought: $28.56 to $31.66 a share
Last close: $27.50
US Bancorp (USB)
Bought: $29.07 to $34.09 a share
Last close: $30.87
WellPoint (WLP)
Bought: $43.23 to $87.63 a share
Last close: $39.92
UnitedHealth (UNH)
Bought: $34.37 to $55.95 a share
Last close: $22.63
For Berkshire's (BRK.A) 2008 stock purchases, it appears that only Wells Fargo (WFC) is in positive territory since Buffett added shares. (Buffett did use a subsidiary to purchase a 10% stake in Chinese battery maker BYD, which doubled after the deal was announced, but the above is a partial list of Buffett's domestic stock purchases.)
This is all to say that just because Buffett's buying now it doesn't mean you have to rush to buy stocks. There's plenty of time to do thorough research before jumping in. And when you do jump in, don't buy everything in one order. It's best to do it over a number of days, weeks, or months.
There is much speculation as to which stocks Buffett is buying for his personal portfolio. Names like General Electric (GE), Wells Fargo, Coca Cola (KO), and Kraft are being thrown around. Buffett may indeed be buying these, as he's said to be a creature of habit.
It's likely, however, that Buffett is also buying small and mid cap stocks. Buffett has previously said that he would generate annual returns of 50% if he had smaller sums to invest.
Given that he has far less cash to put to work than Berkshire, Buffett isn't restricted to large caps. Small and mid cap stocks have a much higher gain potential. For example, investors have to put around $200 billion into GE for it to double. A stock with a market cap of $1 billion, on the other hand, would only require investors to put in $1 billion for it to double. It would grow 200 times on the same amount of capital required for GE to go up two times.
Yes, the best time to buy stocks is when there's panic in the streets. But don't rush, and don't spend all your money in one place or at one time.
Disclosure: I owned no stocks mentioned above at the time of writing.
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This article has 32 comments:
Check his actual purchases. Not sure you got them right. Did you account for splits and spinoffs?
OK, DOW is down from 14000 to 8000 in 12 months and you're singling out Buffett?
Wow, you have a skill at pointing out the obvious.
Go back 5 years and tell me where his purchases are today?
Now go back 10 years and tell me where his purchases are today?
Now go back 15 years and tell me where his purchases are today?
Do you see the point here? It's a voting machine short term, and a weighing machine longterm.
Do you calculate your home price daily?
A stock can double with 1% of shares changing hands or 0.1% for that matter if there is almost no one on the other side selling. So theoretically GE could double with very little new money invested and most of the share holders just holding on to their stock and enjoying the ride...
BTW, GE stock is at an 11 year low.
I'm sure anyone who's recently been buying stocks in this past year will also show their portfolios down as well - be they big-time, famous, experienced, knowledgeable investors, (i.e. Buffett, Gates, whomever) right down to Joe-the-Small-Time-Inv...
The Federal Reserve and Treasury are pumping trillions (with a "t" and a "s") into the banks which will eventually feed into the economy sometime in late 2009. There is no way the government (or any world government) is going to let another finance company fail now knowing the devastation the Leyman failure created (the Leyman failure started this financial crisis because banks stopped trusting each other and refused to lend to each other). LIBOR is coming back down to normal levels meaning the banking system is unthawing. Governments and central banks around the world are taking aggressive action in unison to prevent further bank deterioration.
Gasoline prices have plummeted giving almost every person and business a big “tax” cut. This will eventually give a boost to the economy becoming visible in late 2009.
I see 2010 as a big economic recovery year because of all the extra money in the economy from “cheap” gas and the financial bailout. Stocks will anticipate this recovery sometime in 2009, if not sooner.
Buffett is buying - he is a dogged value investor that demands a good price for quality companies before he buys. You just have to be patient like him.
Now, sounds like "thee" time to be buying stocks. Stocks have already crashed to unreal P/E levels. Forget trying to find the absolute bottom. Set limit orders to buy at 5 to 15 percent below current levels, depending on how much you want a stock. There is a good chance you will get your price because hedge funds are still selling stocks to meet redemptions and losses, and any little “spook story” now causes weak-kneed investors to run for the door in capitulation.
One more thing. Only 11 more days to November and we’ll be out of the notoriously bad “trick or treat” month for stocks.
the examples of putting $200 billion into GE for it to double has no accuracy whatsoever. there are other things that also dictate the price of a stock besides the amount of volume being put into the company. a good example of this is the actual fundamentals of the company and how profitable they are. volume is not everything.
Articles like this come across mocking of someone who was trying to do something good for people and the country. Who knows when the bottom will arrive, or if we'll see an incline only to revisit the bottom in a few months. The point Buffett is making is that stocks are at very attractive prices (in relative terms) and over the next years or decades today's buyers will probably be happy with the purchase. Sounds like pretty fair advice to me.
jimrogers-investments....
So I’ve been buying American stocks."
You can find lots os Warren Buffett`s material in
warrenbuffettstocks.bl.../
(Note: Sir John Templeton passed away on 07/08/2008 at the age of 95. I, along with many others, enjoyed his frequent visits to Louis Rukeyser's "Wall Street Week").
Low prices are never a good reason to buy anything! If I offered you $300 for your car, would you sell, afraid that it would go even lower? No, you'd study the fundamentals of the market, realize that cars like yours are inherently worth a lot more than that, and refuse to sell, even if your neighbors were panicked by my offers sold their cars to me for $300 each.
If only people treated investing with the same common sense that they use when they put their car on craigslist!