Most measurements indicate that the Great Depression and today's economic situation have very little in common. If you agree with that assertion, then let's start looking at 1974 instead. Why? Because, we will discover what Warren Buffet decided to do in the face of that mid-70s "economic collapse."
As we saw in yesterday's post, the stock market chart for 1974, looks surprisingly similar to the 2008 stock market chart. From October 1973, through the end of 1974, the markets collapsed.
You may have seen Buffet's recent quotes and interviews:
- "Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors."
- "Cash is trash", he writes in the NY Times. "Today people who hold cash equivalents feel comfortable," he writes. "They shouldn't. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value."
But what did he do back then?
From his book, Buffett: Making of an American Capitalist,"… His paper losses worsened significantly in 1974. And his net worth, as measured by Berkshire’s share price, fell by half." Yet those "losses" did not discourage the man at all.
In fact the guy was salivating. He wrote this to his shareholders to wrap up 1974, “We consider several of our major holdings to have great potential for significantly increased values in future years, and therefore feel quite comfortable with our stock portfolio.”
And what did he say to the media of the day? With the markets down significantly, and no clear end in sight, the media was hyping gloom and doom at a fever pitch. Forbes magazine interviewed Buffett, and he made his first ever public prediction about the stock market. "How do you feel?" Forbes asked. "Now is the time to invest and get rich. "
And then there was 1975.
And since then, Buffett has made few predictions public and -- as far as I know -- no direct advice on the time to buy or sell stocks.
The much hyped "credit crisis", the existing recession, housing, and stock market decline, have clearly scared a lot of people. These are unprecedented times. But in many ways, not unique.
So you can:
- Try to guess when the recession might end. Try to guess when stocks will run up again. Look for technical V-, U-, or L-shaped market bottoms. Wait for consumer confidence to return. Guess on some other indicator. OR
- Follow Buffett’s lead, find some depreciated assets, and bottom feed now.