Advice from Warren Buffett

[RebbePete]

Re: Advice from Warren Buffett

Things are a buy when their return on capital is above historical norms. In stocks, that's price to genuine earnings (not the projected fantasies). In real estate, that's the rental income to capital invested ratio (forgive me if I get the terms wrong - I'm not a real estate investor). Right now, stocks are still near their historical highs in P/E ratios, and commercial real estate is still way overpriced. I don't think it's time to buy yet.

After the start of the Great Depression, I believe P/E ratios went down to 4 or 5, and stocks were offerring like 10-15% dividends. Real estate cap rates were at least 10% even in a reasonable market, not the 2% or less (even negative!) we see today.

Buffet can get preferred stock at very preferred terms.

For most of us, I don't think anything is a good buy yet, still a "good bye" to your capital!

- Pete

[phirang]

Re: Advice from Warren Buffett

Watch out, credit crunch starting to hit BRIC firms.

Watch orders for airbus, Intel and American heavy machinery fall off the cliff next year.

Watch BRIC dumping treasuries as they save their own economies.

Ironic, as a decay in treasury purchases would only make US exports that much cheaper...

[jimmygu3]

Re: Advice from Warren Buffett

Since everyone seems to think Buffet is wrong and now is not the time to buy stocks, what is the suggested point in time to start buying? Next week? Next month? Next year? In 5 years? What will be your signal? When everyone else is buying?

Going totally out of or boots and all into any one asset class is speculation as far as I am concerned. Nobody knows how the future will pan out (with all due respects to EJ).

I don't follow the American market closely (not being in the US) but I'd be sure there are stocks out there that are yielding well over 10% - you just have to go look. There are REITs in Aus selling at yields great than 20% at the moment. Yes, I know commercial property is crashing and all but said REITs have already dropped by 80%. Even if the yield gets halved it's still 10%.... if they are not a buy now, when will they be a buy?

It's always easy to find a stock yielding 10%- for the time being. You have to really believe in the future of the company and its ability to maintain and increase dividends. That's rare in times like this.

Most people have not truly felt the effects of this crisis yet. Corporations have not yet realized or reported the majority of losses. Most of the layoffs haven't happened yet. Most people haven't drained their retirement accounts yet.

Warren will do well, as he always does. We're not him. It's too early to jump back in to stocks, IMO.

Jimmy

[touchring]

Re: Advice from Warren Buffett

Ironic, as a decay in treasury purchases would only make US exports that much cheaper...

Price don't matter when you can't even get financing or cash to pay salaries.

http://www.istockanalyst.com/article...d_2715613.html

http://www.chinadaily.com.cn/china/2...nt_7114438.htm

http://www.bloomberg.com/apps/news?p...FZ4&refer=asia

[rros]

Re: Advice from Warren Buffett

Does anything else really need to be said?

It was a very profitable trade until April 1930, that is about 7 months. This time doesn't have to be any different.

[phirang]

Re: Advice from Warren Buffett

Price don't matter when you can't even get financing or cash to pay salaries.

http://www.istockanalyst.com/article...d_2715613.html

http://www.chinadaily.com.cn/china/2...nt_7114438.htm

http://www.bloomberg.com/apps/news?p...FZ4&refer=asia

Dunno... seems that deals are still ongoing:

http://www.chinamining.org/Investmen...325d18224.html

China is a command economy... clearly, these industries could be left to die. I do know that there's massive consolidation in their heavy industry, especially to promote less energy intensive manufacturing technology.

[The Outback Oracle]

Re: Advice from Warren Buffett

As it happens i am going to the Canton Fair next week (it is in 3 phases and i am going to the last 2). Unfortunately i have my accommodation already booked! Normally accommodation is very difficult to get and has to be booked months ahead. I am still getting specials, advertised by good Hotels, in my email every day.

[BiscayneSunrise]

Re: Advice from Warren Buffett

Watch out, credit crunch starting to hit BRIC firms.



Watch BRIC dumping treasuries as they save their own economies.

This may already be happening.

In what may already be old news, I spoke with a couple of friends in Sao Paulo last week (October 10th) Word was that two of their largest banks (Itau and Bradesco) were suspending small business and personal loans to re-assess their own capital needs.

Sorry, I don't have a link but the source is impeccable and I did notice local news stations in Sao Paulo showing lengthy clips of those two banks on the evening news last week. My Portugese isn't good enough to get the story but I'm guessing it jived with my local friends were reporting.

[c1ue]

Re: Advice from Warren Buffett

I am a long time admirer of Sir Warren, but his fearful/greedy bit is pure mugging for the crowd.

His model is based nothing on that, the real model is based on FIRE.

With float from gigantic insurance business (well managed, I might add), buy into monopolies or virtual monopolies that generate tons of cash.

When companies are sounds but prices are ridiculously low, buy.

But prices aren't ridiculously low now, nor have Sir Warren's recent (10 years +) purchases done squat.

Even getting bought out by Brazilian/Belgians didn't do much with Anheuser Busch, nor is the railroad doing great now.

Sure these might turn around and maybe will in time, but they're not going to be the Washington Post or American Express all over again.

He's also said - several years ago - that the past 17 year era of 7% or 8% after inflation returns is almost certainly to be followed by 17 years where 4% after inflation returns will be considered awesome.

So do what he does, not what he says. And even then keep in mind he IS a capitalist. Getting shareholders to buy from their own companies just makes profits for Berkshire.

[c1ue]

Re: Advice from Warren Buffett

As for BRICs: I have a firm which is a customer in a side 'business'; they've just cancelled all of their remaining trips to China (firm is in Brazil) for the rest of the year.

Something about losing 40% due to currency cross instability. He noted tht 20% losses weren't unusual, but the present number was simply unacceptable.

[The Outback Oracle]

Re: Advice from Warren Buffett

As for BRICs: I have a firm which is a customer in a side 'business'; they've just cancelled all of their remaining trips to China (firm is in Brazil) for the rest of the year.

Something about losing 40% due to currency cross instability. He noted tht 20% losses weren't unusual, but the present number was simply unacceptable.

What's he complaining about?:rolleyes: I'm off to Chiona next week with my GM. Lord knows what we are going to do there because I can't see much we can buy that Australians will still be able to afford to buy! 100% price increases are difficult to stuff down people's throats in one go...there tends to be a certain amount of choking and indigestion!

[touchring]

Re: Advice from Warren Buffett

Dunno... seems that deals are still ongoing:

http://www.chinamining.org/Investmen...325d18224.html

China is a command economy... clearly, these industries could be left to die. I do know that there's massive consolidation in their heavy industry, especially to promote less energy intensive manufacturing technology.

That's right, China is authoritarian, just like many Asian countries.

You can have a million people thrown out of work in 2 months with last 3 months pay forfeited, and the newspapers will hardly write about it. After protesting for their unpaid wages for a few days in front of their former factory, and after seeing a few of their colleagues arrested by riot police, the unemployed will just return to their farm and start planting vegetables to feed themselves....and so, life goes on....

Twenty million people can lose their jobs and return to subsistence farming without the Western media even knowing much. Meanwhile the communist party will continue reforming the industries to "promote less energy intensive manufacturing technology" as you mentioned. Economic reform at all costs.

The irony is that such authoritarian government is what America now needs to wean off oil and credit dependency. lol

[skurla2000]

Re: Advice from Warren Buffett

I think that Warren Buffett, as the only respected, responsible elder left in this country without a public scandal, felt compelled to do his best to reassure the American public in this time of crisis, whether he believes it or not.

And even if he doesn't believe it, his personal portfolio is just a sliver of his Berkshire portfolio, and worth taking a little short-term loss if it helps alleviate some of the psychological ills that are plaguing this nation.

I think it is important to remember that all economics is essentially imaginary. Market prices are largely based on emotion-based expectations, not any hard fact.

The fed does not seek to control inflation, they seek to control inflation expectations, which are far more dangerous. Likewise, WB is not seeking to control the market, he is seeking to control market expectations, which is far more powerful.

[Basil]

Re: Advice from Warren Buffett

I am a long time admirer of Sir Warren, but his fearful/greedy bit is pure mugging for the crowd.

His model is based nothing on that, the real model is based on FIRE.

With float from gigantic insurance business (well managed, I might add), buy into monopolies or virtual monopolies that generate tons of cash.

When companies are sounds but prices are ridiculously low, buy.

But prices aren't ridiculously low now, nor have Sir Warren's recent (10 years +) purchases done squat.

Even getting bought out by Brazilian/Belgians didn't do much with Anheuser Busch, nor is the railroad doing great now.

Sure these might turn around and maybe will in time, but they're not going to be the Washington Post or American Express all over again.

He's also said - several years ago - that the past 17 year era of 7% or 8% after inflation returns is almost certainly to be followed by 17 years where 4% after inflation returns will be considered awesome.

So do what he does, not what he says. And even then keep in mind he IS a capitalist. Getting shareholders to buy from their own companies just makes profits for Berkshire.

The way Sir Warren has been paraded about as the shrewd investor in these difficult times, seems almost a sign of desperation. The NYT article was poorly argued at best. The amount of 'smart money' investors that were paraded about this week as saying this is a great time to buy makes me think that this is more wishful thinking than rational analysis. Once a market has lost more than 50% of the gains from its previous low (7286 in 2002), one needs a bit more rationalization than 'equities are better than cash' to get back in.

We may have a nice short term bounce, but as most here have observed, there is likely far more pain to come. At this point, the only people who I listen to are those who saw the hurricane coming and are aware that the usual instruments of navigation can be quite misleading in extreme weather conditions (e.g. since August, everybody and his cousin has been talking about equities being oversold). Sir Warren is not among these; EJ, Roubini, Weis, Doug Casey, and others were.

[blazespinnaker]

Re: Advice from Warren Buffett

Warren isn't a liar. This premise of his has been pretty much his thesis his entire investing career.

He made this call in the late 70's and those who followed, did extremely well. He's making the call again.

Sure, the market might dip another 20% .. I wouldn't be surprised. But we are at historical lows for P/E

http://bigpicture.typepad.com/commen...sp_500_50.html

If the median is 17, and we're at 11? Most certainly we're at historical lows.

The fact is, everyone is bearish on the market. That's the best buy signal I've heard in a long time.

Also, like the man said, government action will be inflationary. Cash is trash.