Late last year my colleague Joseph Lazzaro posted a story about NYU's 'Dr. Doom' Roubini: Stocks may fall another 20% during recession. That has to make one take pause when considering an investment in the stock market today, even after a major drop retesting November lows this week. On the other hand, Warren Buffett went out of his way to encourage the investing public and money managers alike that it was safe to go back into the market.
However, today it has been widely reported that Buffett sold off half of his holdings in Johnson & Johnson and trimmed his stake in Procter & Gamble.
If you look at my actions, though (and read my posts of the last few months), you would know I have been buying, too. A lot of the investments that Buffett's Berkshire Hathaway (NYSE: BRK.A) has been making have resembled loans as he has bought preferred shares with fixed interest rates and warrants to boot. Barron's had it's own recent take on the subject: Can Buffett have a lousy month?
There are many differences between the two men and their roles in the market place. While Roubini can make general pronouncements about trends he sees, and broad sweeping statements, much like a fortune teller, he is short on specifics. Exactly when does he envision it will be safe to go back into the market? In two quarters, four, six, ten? You won't hear that from him. He does not know. He has not put his assets at risk. He probably only has to be correct within a six-month range, and that will allow him to retain his reputation.
On the other hand 'my pal Warren' does not have the luxury to act in approximate terms. On any given day he must choose to act or not. Buy, sell or hold -- that's it. I have chosen to invest, but with some caution. It is true that fools rush in where brave men fear to tread, however, at some time you must act.
I do not expect Roubini to give the all-clear sign any time soon. It may be too early now, although so far I'm doing okay, and I am confident that by the time Roubini feels comfortable with the world economy it will be too late. I have satisfied myself that the sun will rise in the morning.
Although Buffett sold off large blocks of stock, he has been buying as well. As best as I can make out, he is adjusting his portfolio not abandoning the market, moving into energy stocks and beaten down companies like Harley-Davidson (NYSE: HOG), Tiffany (NYSE: TIF), General Electric (NYSE: GE) and Goldman Sachs (NYSE: GS). If you choose to speculate on his motives, it would be simple to assume he is betting on those that fell the most to have the most to gain in a turnaround.
In some ways the Roubini/Buffett philosophies go hand in hand. If one is to find the courage to invest while blood is in the streets, then Roubini has contributed to the fear, spilling a little blood, allowing for the opportunity that I perceive. Roubini is doing what he does best -- writing, teaching and lecturing. Buffett is doing what he does best, finding opportunity in the market as best he can. Scoreboard: Buffett $50 billion -- good enough for me.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of BRK.B, GE, HOG, JNJ, and TIF.
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Reader Comments (Page 1 of 1)
2-18-2009 @ 1:16PM
sonnype said...
until the goverment provides better regulations of the market and protects shareholders many people including myself will not trust the data or the managers on Wall Street and will not enter the market.Markets left unregulated are open to manipulation and shareholders left holding the bag
2-18-2009 @ 6:30PM
john said...
Does anyone know where the markets are going. So far we have been racing back to 1930: as time has gone by we have moved past referenced milestones eg "it wont be worse than the 90's - then the 80's and so on.
The problem is where do you put your money so it maintains its value; bank deposit, equities, bonds, gilts or buying insurance policies from the terminally.
2-18-2009 @ 4:43PM
tflan01 said...
Who Care what Roubini says,( How much money does he manage) If he called correctly the Market falling what is his end game. There are no seers out there and like a broken clock he will be right about two times. Stick to your plan, and yes asset allocation still works even though in 2008 it did not. Most people look too short term , look out two years thing will look rosy again. at 7300 go strong in the market.
2-18-2009 @ 5:44PM
Craig Medley said...
If you have any money, bury it in a mason jar. I have no confidence in the stock market. Many people are hurting right now because of the greed found too late in many of the top CEO's. Wall Street is far removed from Main Street and it will be a long time before the masses of people will have any trust in the stock market. Vegas would be more profitable for you gamblers. I can't afford to gamble any more.............
2-18-2009 @ 5:53PM
toogeorge said...
I think this is still true.......TAKE A LOOK AT A DOW CHART, ADJUSTED FOR INFLATION(=in constant value dollars) since its inception, in 1896....YOU WILL SEE A 30-35 YEAR CYCLE(except for 1929-32 when it fell about 90% in 3 years.......I THINK WE ARE ABOUT 8 YEARS INTO THE 17 YEAR BEAR PART OF THAT CYCLE, IF HISTORY IS REPEATED, SO THERE WOULD BE ANOTHER 9 YEARS TO THE BOTTOM(the Dow peaked in constant dollars in Jan 2000)........You can find these inflation adjusted charts by entering 'Dow chart inflation adjusted' on Google...Note that the Y-axis is logarithmic and if there are more then 4 cycles you tend to lose the cyclic nature(Wikipedia has this defect)....'Fred's intelligent bear site' shows the 30 year cycles well.
2-18-2009 @ 6:16PM
Chad said...
Buffets company (BRK.A or BRK.B) is down 40%+ just like the S&P 500. He might be good at buying up company's, I believe that is where most of his money came from. That and getting a following to chase up the prices on the stocks during good times that he owned. But now everyone is getting out and nobody is pushing up his stock prices. And he is still in. Owning stocks for the last 2 years has been suicide, yet he has and is getting killed. Genius? I dont think so. If he wants to buy, he should atleast look at the history of the dow. I am not touching the stock market until the DOW goes through 6000 and will be buying like crazy IF it reaches 4000.
2-18-2009 @ 7:36PM
hollybarry1191 said...
Know what no one's saying today, after Obama's big housing fix?? What about the commercial real estate market next? The hair salon, parts business, etc. Oh,and what about the defaults on credit cards coming down the pike. Oh yeah, and what about the plain old fact people don't have money anymore to buy anything because they're too leveraged. Oh yeah, and the global economy! Expect the Dow to see 5K.
2-18-2009 @ 8:38PM
Yon said...
Buffett saying to buy while he is selling? Not a very nice manipulation of the market. If Buffett is right in his manoeuvers, he agrees with Dr. Door Roubini by selling. If you want to make money, short stocks.
2-18-2009 @ 9:26PM
kirkb083 said...
maybe old buffet is counting his cows.every once in a while you got to count your cows to see if your as big a rancher as everybody says you are. with all the crooks coming out of the woodwork maybe he has been stung too. like a good fisherman you never tell other fishermen where the fish are. that is if you want too go back there and catch some later.and old buffet being a good fisherman surely isn't going to tell you where to invest. but if you keep fishing you may run out of bait, being money before you catch the fish.
2-18-2009 @ 9:31PM
Beltway Greg said...
Pessimistic enough fur ya? Dow 5000, 4000, 3000, going, going, gone. At this point I'm starting to feel that commodities (more specifically, oil) are the key. Until it moves and holds above $45 a barrel WTI we're just looking at a short game. Just about every tool in the arsenal has been deployed and yet the ship is still sinking. Oh yes, I remember the good old days of last year when it was theorized that if we simply waited until six months after the Fed began lowering rates things would be fine. My god, please bring back exploding IPods; life was so much better then. Our last best hope, Timmy The G, has got to do something adroit in regard to the banks.
One good thing though, if the market continues to tank they'll replace Fast Money, Cramer, and all of the bimbos and himbos on CNBC hopefully with "Gilligan's Island" re-runs. Or perhaps it would be great to see them all living with one another in some type of "Real Life Wall Street" situation with Bernie Madoff, Donald Trump, Tony Harding, and Dennis Rodman plus the former lesbian bassist for the 80's girl group "The Go-Go's," Jane Weidlin.
To quote them, "Can't stop the world, why let it stop you."
And hey you guys, I wouldn't forget you, of course we'd have the AGD Aaron and Henry from Tech Ticker display whatever they got in their arsenals.
2-18-2009 @ 9:59PM
kirkb083 said...
i guess till they round up all the crooks that are in wall street, banks, hedge funds, investment firms etc you are just screwed on a good return fast on your money. Sanford bank assets frozen today.who's next? do you really have the money to invest?do you want another crook to totally destroy your world. listening to wall street telling you to invest in them is now sounding like ads on tv. if buffet jumps off a cliff are you going to follow?if you don't have a plan and enough to back it up i would have a hang onto the cash and wait for the easy money. heck you may even have to go get a job to make ends meet.
2-18-2009 @ 10:09PM
John Huckleberry said...
Buy low sell high. This is a buy and hold market. If you want to act like chicken little go a head. I'm a adult and use common sense not charts, gibberish, news cast or hear say. Resessions last up to 16 months. We're there but the goverment is slow to admit it just like they were slow to admit there was one at all. Buy stock long term.
2-18-2009 @ 10:19PM
Jim said...
Actually, if you look underneath the trades that Buffet made, you will see that he actually is trading out of these companies for the reason that anyone would *IF* they believed that the economy was going to recover, and thus the stock market. J&J and P&G have made him money, in that these staples stocks do rise in a recession and then lose their luster in a recovery. Buffet made his money on them, and is now moving into positions of comapanies that do better in a recovery (energy being one). Hmmm, he's always been right so far.......
2-18-2009 @ 11:35PM
Sheldon L said...
Thank you all for your comments.
sonnype: We do need better enforcement of existing regulations, and reinstatement of rules limiting leverage.
toogeorge: Since 1896 a lot more has happened than the few charts describe. It is also a very short period of time through an eratic century. We all look for some clue to give us guidance and comfort. I get neither from this source.
Chad: Buffett is a few percentage points ahead of the S&P. Throwing around numbers like 6,000 or 4,000 and contemplating some action based on such arbitrary numbers is silly and not relevant except to say you are afraid now. You will not know if you made the right decision until we are down the road some.
Yon: Shorting stocks that are down 50% to 90% is bad advice. The risk is far greater than the potential reward.
Beltway Greg: The talking heads are worthless if you follow their advice but might give some reason to think in the debating formats. Oil is going back up for sure.
2-19-2009 @ 2:06AM
John Dupuis said...
Putin Warns US Democrats Against Socialism (Video) "We must not revert to isolationism and unrestrained economic egotism... Excessive intervention in economic activity and blind faith in the state's omnipotence is another possible mistake. True, the state's increased role in times of crisis is a natural reaction to market setbacks. Instead of streamlining market mechanisms, some are tempted to expand state economic intervention to the greatest possible extent... In the 20th century, the Soviet Union made the state's role absolute. In the long run, this made the Soviet economy totally uncompetitive. This lesson cost us dearly. I am sure nobody wants to see it repeated."Russian Prime Minister Vladamir PutinOpening ceremony of the World Economic Forum in Davos, SwitzerlandJanuary 28, 2009This is really pathetic.Even Russian President Vlad Putin is warning the US against socialism:You know things are out of control when Communist China is lecturing democrats on protectionism and now the fo
2-19-2009 @ 8:10AM
jmarchisotto said...
Just because dr.doom is not managing money doesnt mean he is wrong .he is spot on.and all the so called gurus are dead wrong.so i think i will listen to the voice of reason roubini and schiff.The pyramid scheme called stock market is over.
2-19-2009 @ 8:23AM
Billy Ocean said...
Here's an honest question....do any of you guys have your blog postings proof read before you hit send?
Let's start with learning the difference between "it's" and "its," and then doing our best to use them correctly.
2-19-2009 @ 8:39AM
stillmanbd said...
They just can't wait to suck everybody back into the market. Watch how slickly they begin to manipulate facts and figures to once again deceive the naive investor. And once again take all they can.
2-19-2009 @ 9:02AM
kluj said...
Agrees with chad 100 percent. Also, i think warren is selling because he needs to raise cash. Rumors are swirling that this so called genius is in trouble like everyone else. Oh, by the way, if warren is doing as the article above says he may be doing, just buying stocks who have dropped the most in anticipation that they will rise the most, then he is going to have his head handed to him. That to me is a sign of desparation and trying to make losses back quicker. Look at his investments thru out history, Only reason most have been profitable is because he has been able to wait 20 to 25 years for them to finally go his way. The average joe playing with his own money just can not possibly do that.
2-19-2009 @ 9:17AM
Trey_ Dawg said...
When it dips under 5,000 im in and then i go long term. chaching!!!!