problems, moreover, have been leaking into the general economy, and the
leaks are now turning into a gusher. In the near term, unemployment will
rise, business activity will falter and headlines will continue to be
scary.
So ... 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. (This description leaves aside my Berkshire Hathaway
holdings, which are all committed to philanthropy.) If prices keep looking
attractive, my non-Berkshire net worth will soon be 100 percent in United
States equities.
Why?
A simple rule dictates my buying: Be fearful when others are greedy, and
be greedy when others are fearful. And most certainly, fear is now
widespread, gripping even seasoned investors. To be sure, investors are
right to be wary of highly leveraged entities or businesses in weak
competitive positions. But fears regarding the long-term prosperity of the
nation's many sound companies make no sense. These businesses will indeed
suffer earnings hiccups, as they always have. But most major companies
will be setting new profit records 5, 10 and 20 years from now.
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. So if you wait for the robins,
spring will be over.
A little history here: During the Depression, the Dow hit its low, 41, on
July 8, 1932. Economic conditions, though, kept deteriorating until
Franklin D. Roosevelt took office in March 1933. By that time, the market
had already advanced 30 percent. Or think back to the early days of World
War II, when things were going badly for the United States in Europe and
the Pacific. The market hit bottom in April 1942, well before Allied
fortunes turned. Again, in the early 1980s, the time to buy stocks was
when inflation raged and the economy was in the tank. In short, bad news
is an investor's best friend. It lets you buy a slice of America's future
at a marked-down price.
Over the long term, the stock market news will be good. In the 20th
century, the United States endured two world wars and other traumatic and
expensive military conflicts; the Depression; a dozen or so recessions and
financial panics; oil shocks; a flu epidemic; and the resignation of a
disgraced president. Yet the Dow rose from 66 to 11,497.
You might think it would have been impossible for an investor to lose
money during a century marked by such an extraordinary gain. But some
investors did. The hapless ones bought stocks only when they felt comfort
in doing so and then proceeded to sell when the headlines made them queasy.
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.
Equities will almost certainly outperform cash over the next decade,
probably by a substantial degree. Those investors who cling now to cash
are betting they can efficiently time their move away from it later. In
waiting for the comfort of good news, they are ignoring Wayne Gretzky's
advice: "I skate to where the puck is going to be, not to where it has
been."
I don't like to opine on the stock market, and again I emphasize that I
have no idea what the market will do in the short term. Nevertheless, I'll
follow the lead of a restaurant that opened in an empty bank building and
then advertised: "Put your mouth where your money was." Today my money and
my mouth both say equities.
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