Animadversions.

The weblog of Joshua Drescher

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I love Warren Buffett…

October 17th, 2008 · 1 Comment · Politics

…because he says stuff like this:

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.

His NTY op-ed on the current economic climate is the perfect distillation of what folks need to know right now:

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

It the next President doesn’t tap him for Secretary of the Treasury, I’m going to be SUPER-pissed.

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1 response so far ↓

  • 1 ralf // Oct 18, 2008 at 6:40 am

    I wouldn’t mind Krugman for the Treasury either. I would guess that the Nobel Prize would do wonders for credibility and market confidence in his pronouncements.

    Of course, not Buffet-level confidence, but still…

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