Warren Buffett Says It's Time To Buy!

This is the text of an opinion piece written by Warren Buffett and published in the New York Times on Friday, October 17, 2008:

Buy American. I am.

By Warren E. Buffett

The financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

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.”

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.

Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.

Dow Entry Level at 6,000?

Robert Shiller, professor of finance at Yale University and chief economist for MacroMarkets LLC, tracks what he calls the "Graham P/E," a measure of market valuation he adapted from an observation Graham made many years ago. The Graham P/E divides the price of major U.S. stocks by their net earnings averaged over the past 10 years, adjusted for inflation. After this week's bloodbath, the Standard & Poor's 500-stock index is priced at 15 times earnings by the Graham-Shiller measure. That is a 25% decline since Sept. 30 alone.

The Graham P/E has not been this low since January 1989; the long-term average in Prof. Shiller's database, which goes back to 1881, is 16.3 times earnings.

But when the stock market moves away from historical norms, it tends to overshoot. The modern low on the Graham P/E was 6.6 in July and August of 1982, and it has sunk below 10 for several long stretches since World War II -- most recently, from 1977 through 1984.


It would take a bottom of about 600 on the S&P 500 to take the current Graham P/E down to 10. That's roughly a 30% drop from last week's levels; an equivalent drop would take the Dow below 6000.


Source: http://gregmankiw.blogspot.com/

Is it safe to enter the stock market when Dow comes down to 6,000?? Or 8,000?? Risk comes from not knowing what you are doing. If you dont know what you are doing, why rush to buy now when the market is still in turmoil? Ask yourself, "Is it worthy to risk losing money when you think the bottom is still far away"? Why go against the tide? Capital preservation is the key now. The market will always be there. It wont go away. Be patient and think rationally!! Do your homework before you buy. Always be prepared. Like Charlie Munger said, "Opportunity comes to the prepared mind".

A Picture Paints A Thousand Words

Market is still unattractive at current level of around 935 points for KLCI. Is it time to accumulate?? I dont think so. Better be approximate right than precisely wrong! Keep in mind that KLCI represents only 100 top stocks by market cap. But when the market falls, the second and third liners would be the most affected. Wait for the right time to enter again. What say you? The market is always there and it is there only to SERVE you, not to INSTRUCT you! Its time for holidays. Cheers!!!

One Up On Wall Street

Source: thesimpledollar.com

Peter Lynch is a Wall Street legend. He drove Fidelity’s Magellan mutual fund to some incredible returns in the 1970s and 1980s, year after year. From 1977, when he took over the fund, to 1990, when he retired, that fund grew from $18 million in assets to $14 billion. In those thirteen years, a single share of the Magellan fund increased 900% in value - a 29.2% annual return - and outperformed the stock market by 13.4% annually. That’s an incredible run, without much question the best run of more than ten years ever by a mutual fund manager.

Looking Into One Up On Wall Street
The book opens with an impassioned argument from Lynch on behalf of seeking out “tenbaggers,” which refers to stocks that increase in value ten times from their initial investment - buy a stock at 10, when it goes to 100 you have a tenbagger. Lynch makes the astute point that if you buy six stocks, five of them go to zero, and one is a tenbagger, your rate of return is still 66% - an utter killing. Clearly, Lynch’s argument for individual stock investing is that you can occasionally hit a grand slam and make up big time for a few strikeouts.

Preparing to Invest
Most of this section focuses on one key point: ignore the analysts and “experts.” Instead of tuning into CNBC for the “hot” picks, do your own research and find the stocks that you understand and believe in. Also, don’t try to time the market or predict the economy. Very few people can do that well - if Ben Bernanke can’t do it all the time, how can you? The economy is incredibly complex - don’t get egotistical and believe that you know how it works.

Instead, focus on what you know (circle of competence). Look at companies and industries that you’re familiar with. Listen to what people you know are talking about and follow that to your investments. I know personally that I strongly encouraged one investor to buy Google at the IPO because I knew the search engine business pretty well. A friend of mine swore up and down that Starbucks was going to be huge circa 1992. Just listen to what people say, do your own investigating, and follow up on what you find.

Most important of all, Lynch offers three questions that you need to seriously answer before you start investing in individual stocks.

1. Do I own a house? If you don’t, buy a house first. It provides you a stable and permanent place to hang your hat. Some might argue with this advice, but the permanence and investment qualities of a home, the advice does make a lot of sense. That doesn’t mean fully owning a house, but just to be in one and have a stable non-adjustable mortgage that is building equity.

2. Do I need the money? Don’t invest with money that will leave you feeling sick if you lose it. Use extra money, money that won’t devastate you with each loss. You need to be able to stomach big losses with the money without breaking a sweat if you’re going to swing for the fences.

3. Do I have the personal qualities it takes to succeed? Lynch lists patience, self-reliance, common sense, a tolerance for pain, open-mindedness, detachment, persistence, humility, flexibility, a willingness to do independent research, an equal willingness to admit mistakes, and the ability to ignore general panic. Notice that among these traits, a high level of intelligence is not found - you don’t have to be a genius to succeed at investing.

To read more: http://www.thesimpledollar.com/2008/02/08/review-one-up-on-wall-street/

Great Depression II ?

Japan's Nikkei plunges 9.4%, biggest drop in 21 years
TOKYO: Japan's stock market plummeted 9.4 percent, Its biggest one-day drop in 21 years, on Wednesday as investors rushed for the exits on deepening fears over the global financial crisis.

The benchmark Nikkei 225 index nose-dived 952.58 points to 9,203.32, a five-year low. That was its third-biggest drop in percentage terms and largest plunge since October 1987.

The massive sell-off in Tokyo follows a plunge on Wall Street Tuesday, when the Dow Jones industrial average lost more than 5 percent despite steps by the Federal Reserve to reinvigorate dormant credit markets.

http://biz.thestar.com.my/news/story.asp?file=/2008/10/8/business/20081008160936&sec=business

Jakarta suspends share trading after 10% fall
KUALA LUMPUR: Indonesia’s Stock Exchange has suspended trading in its equities and derivatives at midday on Wednesday after the Jakarta Composite Index fell 10%.

In a statement posted on its website on Wednesday that the suspension of trading in all markets was “due to significant decrease of the JCI to a level of 1,451.669 at 11.06am”.

“The trading is suspended until further announcement,” it said.

According to the data, the Jakarta Composite Index fell 168.05 points to 1,451.66, prompting the stock exchange to suspend trading.

Bloomberg said this was the first time in eight years that trading was suspended. Trading was last halted in September 2000 when a car bomb damaged the exchange building and killed 15 people.

Source: The Star Online

On the brink of bankruptcy
Iceland could be the first country to declare bankruptcy due to the financial meltdown.
http://news.yahoo.com/s/ap/20081007/ap_on_re_eu/eu_iceland_meltdown_1

EQUITY INDEXES

VALUE CHANGE % CHANGE
Topix 899.01 -78.60 -8.04
Hang Seng 15,431.73 -1,372.03 -8.17
Singapore Straits Times 2,033.61 -143.94 -6.61
S&P/ASX 4,388.10 -230.60 -4.99
Source: Bloomberg

No Malaysia KLCI data in Bloomberg, nvm, i add it for future reference:
KLCI 970.19
Change -27.04
% Chg - 2.71% (the % change have to calculate myself (SIGH) since The Star and Bursa website just provide the absolute change. Dont you guys think the % change is more important and USEFUL??). So if anyone working there read this, pls ask them to include the % change here: http://biz.thestar.com.my/
http://www.bursamalaysia.com/website/bm/
For a good example, see OSK188.com


Too many bad news in the market now!! But Warren Buffett is on shopping spree. Be greedy when others are fearful?? How long will the selldowns last? Let's wait and see (at the same time, read The Snowball).

The Greatest Business In the World

Some meaningful quotations:

"I call investing the greatest business in the world because you never have to swing. All day you wait for the pitch you like. Then when the fielders are asleep, you step up and hit it." - Warren Buffett.

Big money is made in the waiting - Jessy Livermore

Be prepared, act promptly, in scale, on a few major opportunities.

It takes character to sit there wit hall the cash and do nothing. I didn't get to where I am by going after mediocre opportunities.

It's like looking for a horse that pays 50/50 and has a 3-to-1 chance of winning. - Charlie Munger.

Is Mr. Market Always Wrong?

An interesting article by Ooi Kok Hwa
Taken from The Star (July 16, 2008)

The market is always wrong (in Malaysia)

It exists to serve and not to instruct, it will not tell you whether you are right or not.

The rippling effect of the US subprime issue, coupled with the fear of high oil prices and political uncertainties have sent a lot of stocks tumbling to very low levels recently.

At the start of this year, when the market was touching a new high of 1,500 points, some fund managers predicted the market might go even higher.

However, following the recent market crashes, the KL Composite Index fell to about 1,150 points, a drop of 350 points within six months. Now, certain fund managers have started to predict the market dropping below 1,000points in the near future.

Most retailers cannot comprehend how fund managers can change their market forecast by 500 points within a six-month period. The main reason for this is the change in market perception.

Due to the impact of the issues mentioned above and the tumbling stock prices, the fear of weak corporate performance has caused some company owners’ to hold back on expansion programmes. This has resulted in weaker corporate results and panic selling on the stock.

According to George Soros, this phenomenon can be explained by the “reflexive process”, - the feedback loop where a change in stock prices causes a change in company fundamentals, which, in turn, justifies a further drop in stock prices.

He said perceptions change facts; and facts change perceptions. Hence, the drop in stock prices can cause further drop in the company’s stock prices.

According to Phillip Fisher, market prices are determined more by perceptions than facts. Besides, analysts like to place more weight on the short-term performance of a company rather than focus on its long-term prospects.

As a result, when the overall market is coming down, analysts like to lower the target-selling price of a company and increase the target-selling price when the overall market is trending higher.

Risk means uncertainty of outcome. The stock market reacts negatively to risk. Whenever the stock market has a lot of uncertainties, all stocks - regardless of whether they are good or poor fundamental stocks - will be hammered down.

However, we always believe crisis means opportunities. The recent drop in market prices creates magnificent investment opportunities. Even though the market may drop further as there are still a lot of uncertainties and outstanding negative news pending announcement, we believe there is great opportunity for long-term investment.

Warren Buffett believes that the stock market is manic-depressive: it always overreacts to positive as well as negative news. If the overall market sentiment is good, the stock price may surge sky high. However, if the market sentiment is depressive, the stock price may plunge to insanely cheap.

That is why Buffett said: “The market is there to serve you and not to instruct you. It is not telling you whether you are right or wrong. The business results will determine that.”

Hence, the key factor is to purchase the right business at the right (price).

We believe a lot of investors know which good quality stocks to hold for the long-term. However, they always complain these stocks are too expensive most times. As a result of the recent market crashes, some of these stocks have dropped to quite attractive levels.

Even though they may get even cheaper if the overall market drops further, we need to prepare ourselves by understanding the intrinsic value of the stocks and at what price we will start to accumulate them.

According to Nassim Nicholas Taleb in his book entitled The Black Swan, we should stop trying to predict anything and instead take advantage of uncertainty.

A lot of investors or analysts may spend a lot of time trying to predict the market bottom. We should not try to predict when the market will reach its bottom as we will never know until it happens.

The key thing is to focus on is whether we have already identified which good quality stocks to invest in when the market is getting nearer to the bottom. Instead of trying to catch the stock at the lowest point, we hold the principle that we would be happy if we are able to catch those stocks 20% from the low.

George Sampson - The Greatest Dancer I Have Ever Seen!

When I first saw him dancing, I thought "Is he the next Michael Jackson?" He is just an incredible dancer. For your information, I am not a fan of break-dance or some sort of that. But when I see him dance, I was just speechless. Everyone knew that Michael Jackson is famous for his moon walk dance. But George Sampson is different. He is unique. He has got his own special moves. He is simply the best dancer I have ever seen since Michael Jackson.

After his unsuccessful first attempt in Britain’s Got Talent 2007, he continued to train hard and dance on the street in Manchester for about one year. In 2008, he entered the competition again. This time with better moves and George Sampson finally entered the semi final on second attempt. As he said, he hopes to win the competition for a better life for him and his family.

Sometimes I wonder “Is it most of the successful people come from a poor family/difficult background?” They have live life the hard way and can work hard and never give up easily. George reminds me of many successful people who live a hardship life before their successful life.

He just never gives up, hardworking and eventually return with a bang! George made it into the final and went on to win the Britain’s Got Talent 2008. Even if he didn’t win, I believe he will become a very famous dancer in the world. Hats off to George Sampson!

2007 Audition


2008 Audition
http://www.youtube.com/watch?v=W_dcnS-KZpE&feature=related

Semifinal
http://www.youtube.com/watch?v=wbUcfL9BQhk&feature=related

Final
http://www.youtube.com/watch?v=TKKdvyTd4rg&feature=related

And the Winner is.......
http://www.youtube.com/watch?v=3zFcpRXn95o&feature=related

The Next Bear Stearns?

Taken from bloomberg.com

Fannie, Freddie `Insolvent' After Losses, Poole Says
By Dawn Kopecki

July 10 (Bloomberg) -- Borrowing at Fannie Mae, the U.S. government-sponsored mortgage company, has never been so expensive and it may not get better any time soon.

Fannie Mae paid a record yield relative to Treasuries on the sale of $3 billion in two-year notes yesterday amid concern the biggest provider of financing for U.S. home loans won't have enough capital to weather the worst housing slump since the Great Depression. The company's credit-default swaps show traders are treating the AAA rated debt as if it were five steps lower. Fannie Mae shares tumbled 13 percent yesterday in New York to the lowest level in almost 14 years.

Chances are increasing that the U.S. may need to bail out Fannie Mae and the smaller Freddie Mac, former St. Louis Federal Reserve President William Poole said in an interview. Freddie Mac owed $5.2 billion more than its assets were worth in the first quarter, making it insolvent under fair value accounting rules, he said. The fair value of Fannie Mae's assets fell 66 percent to $12.2 billion, data provided by the Washington-based company show, and may be negative next quarter, Poole said.

``Congress ought to recognize that these firms are insolvent, that it is allowing these firms to continue to exist as bastions of privilege, financed by the taxpayer,'' Poole, 71, who left the Fed in March, said in the interview yesterday.

Fair value accounting measures a company's net worth if it had to liquidate all of its assets to repay liabilities. Fannie Mae and Freddie Mac, both of whom have the implicit backing of the government, make money by borrowing in the bond market and reinvesting the proceeds in higher-yielding mortgages and securities backed by home loans.

`Inflection' Point

Lawmakers in Washington may question Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson at a 10 a.m. hearing today about the financial health of the companies and whether they jeopardize the financial system.

``At some point we're going to reach that inflection, where the government is going to have to either guarantee explicitly or Fannie and Freddie are going to have be left to fend for themselves,'' Peter Boockvar, an equity strategist at Miller Tabak & Co. in New York, said in an interview with Bloomberg Television. ``We're getting to that point where a decision has to be made by Washington.''

The plunge in Fannie Mae and Freddie Mac yesterday in New York Stock Exchange trading led financial shares to their biggest decline in six years and sent the Standard & Poor's 500 Index into its first bear market since 2002. Fannie Mae, which dropped $2.31 yesterday, rose 41 cents to $15.72 in Frankfurt trading today. Freddie Mac, which declined $3.20 yesterday, rose 24 cents to $10.31 as of 9:25 a.m.

To read full article, click here http://www.bloomberg.com/apps/news?pid=20601087&sid=a7NPAG.LEjHQ&refer=home

When Warren Buffett Speaks, The World Listen!

Taken from CNBC.com

Warren Buffett's Advice to Young People Seeking Financial Independence
Thursday, 3 Jul 2008

Warren Buffett has some advice for young people, like college students, who want to remain financially independent. It's not new and its not a surprise, but it is solid counsel on avoiding a very common money pitfall, and worth repeating:

"The biggest suggestion I have is to avoid credit cards. Interest rates are very high on credit cards. Sometimes they are 18 percent. Sometimes they are 20 percent. If I borrowed money at 18 or 20 percent, I’d be broke.... So if I had one piece of advice for young people generally it would be to just avoid credit cards."

Warren Buffett tries out a new variety of Blizzard at a Dairy Queen in Omaha earlier this week. We assume he didn't use a credit card to pay for it.

That quote comes from a news release about Buffett's visit this week to a Dairy Queen in Omaha to promote a July-only special: Girl Scouts Thin Mint Cookie Blizzard Treat. Dairy Queen is a subsidiary of Berkshire Hathaway.

It was during this event that Buffett told the Associated Press he was amazed that a Chinese fund manager agreed to pay $2.1 million to have lunch with him. "It kind of blew me away," said Buffett. Last year's winner paid about $650 thousand. But, says Buffett, the extra dollars won't necessary translate into a longer lunch, which usually clocks in at three hours in any case.

Every year, a chance to share lunch with Buffett is auctioned off to raise money for San Francisco's Glide Foundation.