myfinancialmarket.com

Billionaire and super investor Warren Buffett is suggesting now to be greedy on equities. As he points out when others are in a state of panic, he buys and when investors are getting too greedy, he sells. He talks about the lows of the DOW and points out that during the Depression, the Dow hit its low of 41, on July 8, 1932 and this was long before the actual economic recovery that followed.  Warren further points out that he can’t predict the short-term movements of the stock market thus he also doesn’t have the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. He feels what is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. I like his quote of “So if you wait for the robins, spring will be over.”

I’m sure he is correct for the long term, yet I just wonder how low the market will take us before it recovers. What he didn’t write in comparing the current Dow to that of the 1920’s and 1930’s, is that the peak of the Dow prior to the depression occurred in August of 1929 at a value of about 380. Given our current drop in the Dow of about 33%, that would be equivalent to a Dow of 253, a value passed easily on the downside in October of 1929. Buying stocks then would have been way to soon and an investor would have seen the Dow drop another 83% before it bottomed. I suspect we do not have this ahead of us, yet the question arises, does history repeat?  Is now too soon to buy? Certainly Warren can absorb further market declines better than the rest of us, but should we follow him now?  This is the question you should ask yourself. For now I have still kept a group of 20 Mutual Funds in my portfolio, yet am thinking that since I’m returning to my old ways of trading more often for next year, that at some point I’ll move them into cash. This would automatic start (not all at once) if the DOW breaks it’s current lows, or if there is a rally of sorts to sell into. Keep also in mind that many investors sell this time of year to capture losses for tax reporting purposes. With all the recent selling, perhaps this has already happened, yet there could be more to come.

Don

You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.