Friday Flashback: Warren Buffett Said Buy American, Was He Right?

Three months ago, the New York Times published an op-ed piece written by Warren Buffett entitled “Buy American. I Am.“  It made sense and was pretty straight forward, but was he right?

Before I answer that, take a look at my original post from 10/17/08:

This morning’s New York Times ran an op-ed piece entitled “Buy American.  I Am.“  The author is none other than the legendary Mr. Warren Buffett.

The piece was laced with quotables.  Below, you will find a list of those quotes, followed by my opinion on each. :)

Buffett: “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.”

Silver: If you don’t like to opine, what’s with the op-ed in the New York Times?  Equities…which equities?  ;)

Buffett: “Be fearful when others are greedy, and be greedy when others are fearful.”

Silver: Fearful or greedy?  I’ll choose neither and opt for realistic.  When something looks too good to be true, it is.  In other words, if you see (or if you are promised) sky-high returns with little to no risk or gravity-defying growth, the investment is either illegal or destined to collapse.  

Buffett: “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.”

Silver: True, when your holding period is forever, cash equivalents are indeed a terrible asset.  But, in a shaky market: cash=stability.  Some people just don’t have the stomach for bailouts, crashes and such, especially when costs are running high and details are running low. 

Mr. Buffett has a marvelous track record and his strategy is pretty basic, but he is not to be confused with the average investor.  He has billions to invest and billions to spare.  His favorite holding period is “forever” and did I mention that he has billions to spare? 

While ultimately I agree with Mr. Buffett, I would not recommend jumping head first into equities.  The stock market is unpredictable, but in the long-term it will move higher.  But, the definition of short-term and long-term varies from person to person and the term “equities” is far too vague for me to make any moves.  Every person has to set their own terms before acting…that is, unless Mr. Buffett wants to opine on a specific stock or two.  :)

So, was he right? It is too early to answer, but if you had taken his advice and invested in the Dow or the S&P 500 on 10/17/08, here is what would have happened to a $10,000 investment as of 1/22/09:

in the Dow: $9,176, a loss of 8.24 percent 

in the S&P 500: $8,798, a loss of 12.02 percent

Take a look at the chart. In the long-run I still believe Mr. Buffett is right, but it looks like he went public (and shopping) just a little too soon.

(Image source: Picapp)