Monday, February 2, 2009

Short-sighted critics of Warren Buffett wrong

There has been alot of criticism of Warren Buffett and his recent spending spree over the last 4 months or so and how that (so far) hasn't paid off.

One person in particular, Doug Kass, has said that Buffett's strategy is stale and This is the end of Warren .

Now Doug Kass has money riding on this by short-selling. He has bet that stocks will go down from here-and he is probably right-while Buffett has been buying up large for the long-term shot.

Everything from Burlington Northern Railways, BYD Auto, Goldman Sachs , General Electric and many more in between, Warren Buffett has been like a kid in one of his See's candy stores with 90% off the prices.

Now I am probably the wrong person to read if you wanted to read unbiased stuff about Warren Buffetts "buy good stocks for a good price and hold forever" strategy but I happen to agree with the great investor and follow that strategy as well-my portfolio is similarly down, well...duh!

Where I think Kass and other critics of Buffett have been shortsighted-and the word shortsighted is the key here-is that they haven't given Buffett's big bets a time to play out-the fact that Buffett has a long-term view seems to have completely escaped the critics!

Buffett's big spending spree began earlier in 2008 when he made deals related to the Mars/Wrigley Merger, the Anheuser-Busch/Inbev marriage and increases in his Kraft shareholdings, then continued past the September 2008 stockmarket meltdown when he made the quite audacious statement to anyone who would listen, in an Op-ed piece that he wrote in the New York Times, to "buy American" stocks, because he thought they were "cheap".

So far this has affected Buffett's Berkshire Hathaway stock price and his other company holdings in a serious way, he has lost billions in wealth as a result and all in a very short time-frame.

But, and it is a big but, Warren Buffett has faced similar stockmarket and economic meltdowns before, bet huge sums while stocks were affected by these meltdowns and always managed to come out smelling of roses and manifold more times wealthier.

After a 5 year absence from the stockmarket from 1969 because he thought stocks in that period were not cheap, he made a reappearance in 1974 just before the turn of a bear market, when he declared in a Forbes interview:

How do you contemplate the current stock market, we asked Warren Buffett, the sage of Omaha, Neb.

"Like an oversexed guy in a whorehouse," he shot back.

Buffett then proceeded to buy up cheap stocks in good companies like he had some kind of billionaire fever. He did it again after the 1987 crash and after the late 1990s tech meltdown.

To be sure even Buffett himself has said the current economic and market situation is like an economic Pearl Harbour and we haven't witnessed anything like this since WW2, so he hasn't got his head completely up the far reaches of his vast wallet.

The only thing that worries me slightly about his recent behavior is that he has been uncharacteristically vocal, giving lots of interviews and making numerous public comments like he never has before.

In one recent interview with Susie Gharib from PBS Nightly Business Report (which incidentally runs on Auckland's Triangle TV at 4.30pm weekdays and is very good) Buffett answered this question from Susie and I would have to agree:

I mean what is your most important investment lesson?

WB: The most important investment lesson is to look at a stock as a piece of business not just some thing that jiggles up and down or that people recommend or people talk about earnings being up next quarter, something like that, but to look at it as a business and evaluate it as a business. If you don’t know enough to evaluate it as a business you don’t know enough to buy it. And if you do know enough to evaluate it as a business and its selling cheap, you buy it and don’t worry about what its doing next week, next month or next year.

SG: So if we asked for your investment advice back in 1979 back when Nightly Business Report first got started, would it be any different than what you would say today?

WB: Not at all. If you’d ask the same questions, you’ve gotten the same answers.

Indeed, time to be greedy when others are fearful.

I would bet on Buffett's side long-term. Lets see what Doug Kass has to say in 5 years.


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