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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

How to Invest Like Warren Buffett

Stock-Markets / Investing Dec 10, 2008 - 09:47 AM GMT

By: Investment_U


Best Financial Markets Analysis ArticleNot long ago I excerpted a recent New York Times column by Warren Buffett explaining his take on the recent market sell-off.

Despite the dour economic outlook, Buffett expects U.S. companies to report record profits within five years. He is getting fully invested in stocks in his own personal account.

Since Warren Buffett's column originally ran on October 14th, however, the S&P 500 has dropped 13%.

Hardly a day goes by that I don't get emails telling me that Buffett “blew it.” He was “too early.” Or he “failed to call the bottom.”

I beg to differ …

Warren Buffett's Economic Outlook

For the record, here is part of Warren Buffett's column that I excerpted:

“Let me be clear on one point: I can't predict the short-term movements of the stock market. I haven't the faintest idea as to whether stocks will be higher or lower a month - or a year - from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up.”

Let's assume for a moment that Buffett is right and five years from now U.S. companies are reporting record profits.

Since we know that share prices follow earnings, the market will likely have met or exceeded its old record high. (The Dow crossed 14,000 in early October 2007.) Investors who bought good quality stocks at current levels will be in excellent shape. So will those who merely reinvested their dividends.

To clarify, let's try a thought experiment: Today is December 8, 2013. The Dow is at 14,000. Looking back, you can now choose any one of these three options - and magically reinvent history.

Over the past six years:

  • The Dow soared from 14,000 to 18,000 and has now declined to 14,000.
  • The Dow treaded water and rarely traded much higher or lower than 14,000.
  • The Dow sank to less than 8,000 and has since climbed back to 14,000.

With the luxury of hindsight, which scenario would you prefer?

If you're in the wealth accumulation phase, clearly the best answer is #3. It may have been scary, but this was the only scenario that offered you the maximum opportunity to buy low.

Investing Like Warren Buffett - Not The Average Investor

That's why, unlike the average investor who is sitting on his hands (except to bite his nails occasionally), Warren Buffett is actively buying stocks.

Some will counter that this is likely to be a steep recession and stocks may go substantially lower.

Buffett surely know this - and clearly reasons that this only makes option #3 more attractive.

History shows that most so-called market timers will either never move or move far too late. They're comfortable in cash because they believe - quite rightly in my view - that the economy will only get worse.

But think hard - and read your history - before you opt out of the market entirely. Yes, the Dow sometimes falls during a recession. But, perversely, other times it soars.

For example, in the 13-month recession in 1926-27, the market went up 41.1%. In the 8-month recession in 1945, it went up 19.5%. In the 11-month recession in 1948-49, it went up 15.2%. In the 10-month recession in 1953-54, it went up 24.2%. In the 10-month recession of 1960-61, it went up 20.3%. In the 16-month recession in 1981-82, it went up 14.6%. And so on.

In my view, investors who are cursing this market are either spending far too much time listening to the “end-of-the-worlders” or stuck looking back, not forward.

If Warren Buffett is right - and he has a long history of being just that - these investors are moaning at opportunity's door right now.

If you want to meet your five- and 10-year investment goals, imagine yourself five and 10 years from now. Ask yourself what you will wish then that you were doing with your money today.

Then govern yourself accordingly.

Good investing,


Today's Investment U Crib Sheet

Alexander Green has been recommending stocks for months now:

  • Last month he showed us the eight places we need to move our money to take advantage of losses from this year. To get them, and the reasons you should own ETFs instead of mutual funds, see Investment U Issue #891, Exchange Traded Funds : An Investment Move You Need to Make…
  • And while most investors are too scared to move, they're missing out on the opportunities out there - like the 13 companies at bargain-basement levels Alex gave us in October, in Investment U Issue #874, What If You're Wrong?

But when you're fully invested, with no plans to sell, it can be hard to find new sources of capital. That's why we've given you two unique ways to find cash:

  • Covered call investing can help you boost your bear market income. You can profit from the stocks you already own. To find out more about this two-step strategy, check out Investment U Issue #889, Covered Call Investing : How to Boost Your Bear-Market Income Right Now.
  • By selling puts, you can get paid to buy the stocks you want, at the prices you decide. This strategy pays you for waiting to purchase stocks. Find out more in Investment U Issue #882, Put Option Selling : Get Paid to Buy the Stocks You Want.

If you're looking for the best way to put your newfound cash to work, take a look at the White Cap Index. It's up 135%, on average, over the past 12 months. To get the full report, including the five latest companies to get White-Cap status, learn more about the White Cap Report .

Article - Investing Like Warren Buffett: Take Your Cue From the World's Best Investor

by Alexander Green , Chairman, Investment U Investment Director, The Oxford Club

Copyright © 1999 - 2008 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email:

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

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