Following Warren Buffett: Is it Time to Buy Stocks?

Monday, Nov 10, 2008

The Oracle of Omaha is buying American stocks. Should you do the same?

Master investor Warren Buffett recently wrote an open letter to the American investment community. "Be fearful when others are greedy," he said, "and be greedy when others are fearful." And Wall Street is a very fearful place these days.

Long story short: Buffett is buying American stocks with his own money right now, and recommends that other investors follow his lead.

Buffett-style growth


The longtime CEO of Berkshire Hathaway is quite possibly the finest investor of our time. Berkshire was a small textile mill when the sage took its reins back in 1965. He transformed it into an insurance business, and used that capital base to build the most diversified company in the world. If you put $10,000 into Buffett's little venture on day one, you'd be a multi-millionaire today.

With that kind of track record, it's best to listen intently when the Oracle speaks. And it's hard to look at the stock market right now without seeing panic-infused discounts on quality stocks everywhere.

Standing on the shoulders of giants


But don't just take Warren's words as gospel. He's surrounded by a Greek chorus of contrarian master investors stretching back through the decades and even centuries.

  • Peter Lynch, who built the Fidelity Magellan fund from a $20 million minnow to a $13 billion whale in 13 years, made his fortune by betting big on stocks that others had left for dead.
  • "Buy when there's blood in the street-even if it is your own," said British banking titan Baron von Rothschild, way back in 1871.


The greatest minds of the investing world all agree that opportunities loom the largest when all the bulls are running to the hills. It's much easier to make a fortune by investing in cheap stocks than by sifting through a plethora of overvalued ones.

The bottom line


A year ago, the S&P 500 index added up to a combined market cap of $13.4 trillion. It's $8 trillion these days, thanks to a 40 percent downhill slide. That's more than $5 trillion of fat getting trimmed off your favorite stocks. If there ever was a time to go hunting for bargains on Wall Street, Buffett says, you're looking at it now.

Equities "will almost certainly outperform cash over the next decade, probably by a substantial degree," says the Oracle of Omaha. Whether you prefer to pick your own stocks, one by one, or cut a wide swath through the markets with mutual funds and index trackers, it's time to put that 401(k) or IRA account to work. Savings accounts just won't cut it anymore.

 

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