Long Term Investors vs. Bear Market Rally?

Includes: BRK.A, BRK.B
by: Mark Hines

On October 15, 2008 the S&P500 closed at 907.84 (down over 41% from 12 months earlier), and the following day Warren E. Buffett posted an op-ed piece in the New York Times telling everyone he was buying stocks in his personal account. Considering Buffett is one of the greatest equity investors in U.S. History, this is relevant information to me because we’re roughly at the same level in the S&P500 now, we’re experiencing one heck of a stock market rally over the last 2 months (up 37%), and many investors are confounded trying to determine if the recent rally has been a been a bear-market-rally that will quickly fade or if the markets are safe again and it’s time to get long.

Without question, many things have changed since October 15, 2008, but also many things have not changed. Our current market conundrum reminds me of two Buffett quotes:

1) “Be fearful when others are greedy, and be greedy when others are fearful.”

2) “I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.”

The first quote was Buffett’s argument for why October 15, 2008 was a good time to buy stocks. Considering the market is now at roughly the same level, it seems now is still a good time to buy stocks for the long-term. Granted, a lot has changed in the market, but a lot is still the same, and Buffett is a genius investor with an amazing track record.

The second quote seems to suggest that long term investors shouldn’t trouble themselves trying to determine if the recent stock market rally is a bear-market-rally or not, but rather now is still a great time to invest for the long term. I certainly wouldn’t drop my entire life savings into the stock market all at once, but I think now is still a great time to increase your long term exposure to equities.