Be Like Buffett: Get Off the Roller Coaster 14 comments
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Watching the stock market these days is like being on a roller coaster - but it does not have to be. An investor would do well to think about the stock market as a person who is sometimes rational, yet sometimes irrational, always emotional, and subject to manic fits. Do not let Mr. Market guide you, but rather take advantage of his fearful moments to buy great businesses with good long-term economics, when these companies are selling at reasonable/advantageous prices.
Another way to look at it is to see the market as an auction, where people bid every day on all public companies. You can either buy or not. When the people at the auction are depressed and bidding really low for excellent companies, you would want to put in a bid and buy. If you knew of a local aptartment building or farm and you knew it was great and had a wonderful history and future, but everyone in town showed up to the auction depressed for a variety of factors, and was bidding low incorrectly, then you should bid and buy this wonderful building or farm at this low price.
Warren Buffett's best purchases were made in recessionary-depressed markets.
Charles Munger, his partner, has said that they accomplished the results they did by avoiding mistakes and taking advantage of inanities - and thereby buying excellent businesses when somebody was foolishly throwing them away based on emotion.
Often people do not throw away a great business. But often you can buy a great business at a fair-reasonable price. There are many like that now.
I would say this basket of companies should be bought when opportunistic pricing is presented by a foolish market: Berkshire Hathaway (BRK.A), Kraft Foods (KFT), Procter & Gamble (PG), General Electric (GE), Diageo (DEO).
Another good strategy is to consistently buy shares of a great fund like Gabelli Equity Trust (GAB) . Just owning some of Berkshire and Gabelli is wonderful because you get to see what Warren Buffett and Mario Gabelli are buying.
If one has cash and is diversified in good businesses that pay dividends, one can stay the course.
The next months may be very tough. But Warren Buffett has said good businesses will be worth more in five or ten years.
One thing I would add is that it's not a good idea to buy companies with average to bad economics just because they are cheap. These businesses can get cheaper. Stick to buying clear winners - companies that are inevitably going to do well like Coke (KO), PG, Wells Fargo (WFC) and such; you do yourself a huge favor by just not making mistakes. That's how they won at Berkshire. Stick to the obvious, and don't try to jump seven foot hurdles - go for the one-foot easy hurdles.
Buffett uses the example of Ted Williams, a baseball player with a great batting average. He used to only swing at fat pitches and that's what you want to do. Wait for an obvious fat pitch (like Coke, if it gets cheap). This is a great company and one can buy shares when they are reasonably priced and do well over time.
Disclosure: The author is long BRK.B, KFT, PG, GE, DEO, GAB.
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This article has 14 comments:
GE's main problem, to nobody's surprise, is that it's vulnerable to the credit crisis and to the real estate market. Secondarily, it's vulnerable to a worldwide slowdown. I wish I hadn't bought it, but at $22 and change it's on sale. AAA rating, solid businesses, and sufficient income to at least maintain the dividend and work through the crisis. I don't see what's not to like with GE at this price.
As to GE, think of the firm as a mini index 500 vehicle. If GE fails, so does the country, an arguably unlikely event! With this said, close your eyes, hold your nose, and buy GE serially to its ultimate low!
His fund has relatively quick upswings followed by long, flat periods. Buffet himself has warned that future returns are going to be less than past. How do you know we aren't starting another decade long flat stretch?
As far as the Ted Williams analogy goes, a good pitcher will only give you one good pitch to hit in each at bat, and it will in all likelihood be on a corner or in a zone. You don't get a "fat pitch so your average will go down.
That's what bear markets, and this frenetic current state are doing to all who play.
the bill is passed. the fed is active. interest rates will come down or stay the same. that means the dollar will get weaker and more plentiful, again. it is time to inflate the last bubble, my friends. people will rush to gold, if business picks up, and to gold, if business slows down. for safety, for value, for the last bubble, gold.
If anyone is listening to this guy or talking him seriously don't. I live in the town of Meadville and know of this joker. He has lived at home with his grandmother and now his mother his whole life and recently worked at Home Depot as a clerk. Yes he might sound convincing but he doesn't have any money that he has earned on his own. His extented family has money and rental houses in Meadville but he ownes nothing. He is nothing more than a person with dilusions of gradeur about his intelligence. He is a immature and foolish.