Skeptical of Buffett's Call to Buy at Dow 9,000

Don't get me wrong, Warren Buffett is admired around here quite a bit - more so than just about any other billionaire investor - but, going on CNBC on Friday morning and being portrayed as a raging bull probably didn't do him any good in the eyes of those who are a bit more skeptical of the current market rally than is the CNBC staff.

His appearance on Friday comes nine months after his memorable op-ed piece in the NY Times urging investors to buy shares. Coincidentally, the Dow was at about 9,000 back then too.
It's kind of hard to reconcile the "buy when there's blood in the streets" mantra that sounded so good last fall (even though the results weren't so hot) with a similar recommendation now, given the bubbly nature of stock markets around the world where, after the early-July bounce, investors appear to be loaded with optimism once again.

From CNBC:

Warren Buffett tells CNBC that the economy still isn't showing any signs of life but that doesn't mean investors should stay away from stocks for the long-term.

In a live interview on Squawk Box this morning, Buffett says "business is still flat." But he stresses that doesn't mean he's negative on stocks, predicting the market will revive before the economy does.

"The market is very, very likely to turn up before business. But I don't try and time stocks. I try to price stocks."

He repeats his advice from his "Buy American" op-ed in The New York Times last fall: don't wait to buy stocks until the economy improves. By then, he says, you will have missed the biggest stock gains.

Even with the Dow hitting highs for the year around 9000, Buffett repeats his belief that stocks will outperform cash investments, such as Treasury notes, over the long-term. "I would much rather own equities at 9000 on the Dow than have a long investment in government bonds or a continuously rolling investment in short-term money."

From last year's editorial:

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.

At least he's done a heck of a lot better with his Goldman Sachs (GS) shares than most retail investors have done with their mutual funds since last fall.

Comments

[Old Trader:]

I think too many people might interpert what Buffet said as an "all clear" signal to dive back into the market "pool". I didn't see his appearance, since I don't watch CNBC, but going by what's quoted in this article:
"I would much rather own equities at 9000 on the Dow than have a long investment in government bonds or a continuously rolling investment in short-term money."
I'd have to agree. While the screaming deals of March/April are behind us, there are some good stocks that aren't what I would consider as "over-priced", and should do better than staying in cash/equivalents (thinking of the energy sector and some cyclicals, like UPS).

Jul 26 10:13 AM

[The Geoffster:]

I saw the interview. Buffet is a long term optimist. He's looking out 10 years.

Jul 26 10:54 AM

[DownOnMyLuck:]

Buffet isn't advocating "buying the DOW", he says buy shares of good companies at fair prices. Sounds like pretty good advice. Not perfect. But pretty good.

Jul 26 05:04 PM

[Jose Urioste:]

I agree with you. And Buffet was not speking of shares of good companies, he referref to an Index.
The fundamentals of this crisis ar still here

Jul 26 08:15 PM

[untrusting ...:]

Well that's the issue ... namely what is a fair price? According to all past recession metrics, stocks are substantially overpriced at this stage. Therefore if you follow your own advice and past metrics, then you and the smart money WOULD NOT be stock buyers at these prices levels. If you check dshort.com, you will see that PE10 metrics show that in ALL past deep recessions, the PE10 metric has fallen below PE10<10. It has not done so this far in this deep recession, therefore unless all past stock market history is "somehow different this time" (which is what all talking heads say every recession ... but in fact it never has been), then the evidence shows that stocks are in fact substantially overpriced. Thus, the only logical conclusion is NOT to buy stocks at these levels, at least as a LT investment anyway. Now if your a superstar trader and one can accurately predict where stock are going over the next week or so, then great, you might make some money trading. But all historical evidence strongly points to much lower stock prices at some point in the relatively near future, so LT investors would probably be much better advised to wait for much lower prices. Having cash available will be well rewarded when this time comes for those who understand that.


On Jul 26 05:04 PM DownOnMyLuck wrote:

> Buffet isn't advocating "buying the DOW", he says buy shares of good
> companies at fair prices. Sounds like pretty good advice. Not perfect.
> But pretty good.

Jul 26 09:52 PM

[whartonmba:]

Many ordinary investors are still on the sideline, just ask your friends or neighbors.

Jul 26 10:16 PM