Should I buy stocks now?
Who wouldn’t have respect for Warren Buffet? Having said that it does not mean that what works for him will work for you and I. I guess that is why we call it personal finance rather than everybody’s finance. Based on your age, income, risk tolerance, investment portfolio size, tax bracket and other considerations, everyone’s situation is somewhat unique.
That is why the article by Mr. Buffet that he was investing in US equities got me thinking if I should do the same. He writes in The New York Times, “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.” At first glance, it seems the right thing to do. Depending on the stock or index, many of them are trading at 5, 10 or even 20 year lows. My only concern is that Have we seen the bottom yet?
He adds, “Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors.” I agree and I am convinced that it was stupid for anyone young to exit the market recently. I am holding on to my stock market investments because I do not need them for over 20 years at least. He says, “What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up…Over the long term, the stock market news will be good.” That is exactly what I am expecting.
Buffet says that people will generally make money in equities over the long run as long as they don’t try to time the market. He argues that those that lose money are “The hapless ones (who) bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.” Yes, if you buy stocks when everyone is buying by that time they are already too expensive, and similarly, selling them now is simply stupid.
Buffet also agrees with me that 100% cash is not an option. “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,” he writes.
Summary: If you are “young,” hang in there. Keep a close eye on the market and buy when you think we have reached the bottom and stocks start to rise again. I think that is not happening till spring of 2009 since 4Q of 2008 will be ugly and there will be bad news through most of 1Q of 2009 but by that time, economic recovery will resume.
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