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.