Patvano

Second-Guessing Buffett's November Bottom Call

The very premise of the article belies an ignorance on behalf of the author of Warren Buffett in general and specifically Mr. Buffett's editorial. I am thankful that Paul Price posted the editorial in full above. As you can see, Buffett didn't call the bottom: he doesn't make speculative calls like that.

I think it would be helpful to highlight the "Grahamsian" distinction between investment and speculation: speculation is betting that an asset price will move up, regardless of value (think of the "greater fool" theory), while investment is buying something whose value will increase at a reasonable rate at a price that is fair, or, ideally, at a price where it is near;y impossible to lose one's capital. This is not to say Buffett cares nothing of price increases: as Graham says, in the short term the market is a voting machine, in the long term it's a weighing machine. The whole idea of value investing is that, eventually, price catches up with value.

Which gets us to the editorial. Buffett says, essentially, that the underlying assets of the stock market (American industry) is a better investment than cash at current prices. With regard to the direction of the market, he says "I have no idea what the market will do in the short term." Clearly, he was not calling the bottom. The idea is that, at today's prices, the market is offering an attractive long term return.

As to the macro-analysis: I am not saying it can't be done, but I will conclude with Peter Lynch: "Don't time the market. The real key to making money in stocks is not to get scared out of them." & "If you spend more than 13 minutes analyzing economic and market forecasts, you've wasted 10 minutes."