When I first contacted Christopher Hill, editor of Investorazzi.com, about doing a guest blog post he jumped at the chance and hit me with his idea for an educational post for our members. Truthfully this post is a LONG time coming. It delves into the Buffett world. Now most people either love his style or think he's just lucky.
Well read the article below and make your comments and thoughts known. Do you think Buffett will survive? Do you think Faber is crazy? Whatever it is let's get the comments rolling as this is a great topic.
Legendary stock investor Warren Buffett has been in the news a lot lately. This past weekend, the noise was all about Berkshire Hathaway, Buffett’s investment holding company. The Bloomberg website reported Saturday:
“Warren Buffett’s Berkshire Hathaway Inc. posted a fifth-straight profit drop, the longest streak of quarterly declines in at least 17 years, on losses from derivative bets tied to stock markets.
Fourth-quarter net income fell 96 percent to $117 million, or $76 a share, from $2.95 billion, or $1,904 a share, in the same period a year earlier, the Omaha, Nebraska-based firm said in its annual report. Book value per share, a measure of assets minus liabilities that Buffett highlights in his yearly letter to shareholders, slipped 9.6 percent for all of 2008, the worst performance since Buffett took control in 1965.”
As if this wasn’t enough bad news, earlier this week it was revealed that Berkshire Hathaway, which lists more than 70 operating businesses in its latest annual report to shareholders, is cutting manufacturing jobs and closing facilities.
Due to all the bad headlines, some are starting to question if the “Oracle of Omaha” is starting to lose his magic touch. And investors, in particular, wonder if the buy-and-hold investing strategy, which Buffett is known to champion, is ineffective for these volatile times.
One veteran investor who openly questions the buy low, sell high approach to stocks these days is Dr. Marc Faber, otherwise know as “Dr. Doom” by the financial press. Faber, who publishes the “Gloom Boom & Doom” report, predicted the current financial crisis and is famous for telling his clients to get out of U.S. stocks a week before the October 1987 market crash. Back on December 1, Faber said the following on CNBC regarding the buy-and-hold strategy:
“We’ve moved into an environment of very high volatility where you will have up and down moves of, like, 20 percent all the time and that is a traders’ market… The Warren Buffett approach is dead and it’s been dead for ten years and it’s going to be dead for another ten years… We can have huge rebounds and then huge downturns again and I think the best for the average investor is to play it relatively in small amounts and not gear up and take big risks.”
Is Dr. Faber correct in his assertion that the stock market is now a traders’ market? Buffett’s critics might say so, and point to the performance of his investment vehicle as proof. Yet, I still remember those who dismissed Buffett as being over-the-hill in the late nineties due to his avoidance of technology stocks. And what ever happened to these individuals? Recently, Marc Faber has been calling for a rebound in equities. Just last week, he told investors gathered in Tokyo:
“A countertrend rally could occur soon where stocks would suddenly rise quite substantially.”
If Faber is right and equities rally, then fall again significantly, expect the strategy, and poster boy, of buy-and-hold investing to come under even more fire down the road.
Christopher E. Hill
“Tracking The World’s Greatest Investors”
20 thoughts on “Buy-And-Hold No Longer Gold?”
For what it's worth....put the uptick rule back in, OR completely do away with naked shorting.
As for buffet, my opinion is that he is as greedy as all the other corporate gurus. he is publically talking bearish because he is going to use this opportunity to turn his performance around and become the "hero, expert, know-all", (whatever name you choose for him) yet once again thus, keeping his investors and making them happy and filthy rich!
Warren Buffett owns companies and invests in companies. Dr. Faber is a trader seeking quick profits by "playing the stock market." Since he has no interest in ownership or growing companies, only profiteering, it is no wonder that his views are the antithesis of Buffett's. Dr Doom's mantra is nothing new. It's what speculators have been spouting for generations.
You may consider what Dr. Faber does as "speculation" compared to Buffett, but all we're talking about is a difference in holding time for their investments. Buffett holds long-term, Faber holds short term. In my opinion, it's more of a gamble to hold a stock forever no matter what happens externally. You are at the mercy of market forces over which you have no control when you do it that way.
Why not 'invest' in a stock as long as it is profitable, and sell it when it no longer is? This is just good business sense, not speculation. In fact, this is how a free market system should work--reward the most profitable companies by buying their shares, and ignore the underperformers until they can show that they'll give you a return on your investment.
If the average investor is being ‘played’, is there still a place for us in the market?
Yes, don't be average. I'm not being facetious. What I mean is, don't follow the herd, because they're usually wrong, at least when it comes to timing.
For example, do you remember not long ago when everyone was talking about how easy it was to buy real estate and 'flip' it for a profit? That was right about the time that the RE bubble market was at its top. When you see 'average' people falling all over each other to get on board a certain investment, and the mass media running stories about it, that usually means it's time to get out and do something different. One current example that comes to mind now is gold. Think about it.
Learn everything you can from ino.com.
This site is the best. You were lucky to find it because there are millions of them out there.
What am I referring to?
Agriculture has been in a 20 year bear market and that is about to change.
Gold has been in a bull market since 2001. The price of the metal, and the mining shares.
Other precious metals too.
There are other sectors, but I don't trade them but other commodities. Gold is in the commodity index but it is really currency, has been for over 5,000 years. Get some. And best of luck to you.
Adam Hewison is an awesome man with sound knowledge and advice. Go to ino.com and learn from him. Get his emails and watch his educational videos. He is truly one in a million.
Thank you swmap!
I went through ino.com - overwhelming at first, but I know I have to do this. I'm nervous about the timing - I lost half of my investments but still am invested in the traditional things with 6 figure portfolio. Meanwhile, I feel the pressure to change that asap.
I've been reading lots on gold and the views seem quite divided at this point. If there are sources you can recommend you can reach me at [email protected].
Swamp, Brian - I guess I am the Dumb Money. Just read this blog for the first time - in fact trying to learn more about trading for the first time after my Fin Adviser with his 20 person team of analysts sounded so stupid that even I (a complete layman) could tell - that's of course after losing 50% of my RRSP's Book Value in the last 2 months. What I'm reading here is scary, but somehow makes more sense than my Fin Adviser.
Brian - you mention 'basic knowledge of investing' - any recommendations on where to start?
Swamp - what markets are you referring to?
Anthony - any words of wisdom for the average person with RRSPs ?
Finally - if not Buy and Hold, and not Trader's strategy, then is there a middle ground these days? If the average investor is being 'played', is there still a place for us in the market?
Is gold perhaps the answer in the 'new world order'?
You have the answer. You can trade gold on the Forex, or use double gold PMPIX or other type of trades that double gold. ETF's are scams in my opinion. Good shares like EGO, TRE, etc. Don't know if I'm going beyond what's permitted here.
Brian, we have a bull market going, just not in the DOW sector you're referring to. Matter of fact, we have several bull markets going. Guess you haven't heard. Guess Buffet hasn't either. LOL
Yes, I was referring to the Dow, S&P, & NASDAQ. I'm well aware that there are other markets that are rallying even as the stock indexes fall. There's always a trade somewhere in the forex market, for example, though not necessarily enough of a trend to be considered a "bull" market. Depends on your trading time horizon (short-term vs. long-term).
swmap is right, "Learn everything you can from ino.com". It's not your fault that you trusted the 'mainstream' financial media for your advice. I was just like you at this time last year, but fortunately came to my financial senses in time to avoid the big Sept.-Nov. crash. The good information is usually harder to find than the bad advice promulgated by those who don't have your best interests at heart.
Spend as much time as you can listening to reliable advice from trusted advisors like Adam. Also check the blogroll at the right side of the page for other sites. I have some trusted sources of my own, who have helped me tremendously, but don't think I would be able to name them here.
INO's charting system is great for spotting those solid trends, so consider taking that for a trial run. You'll be light-years ahead of the average Joe investor just with that to use as a filter for any trades you're considering.
swmap & Elek:
Be careful about jumping on Gold at this time. Bullish sentiment is still at extremes, which usually indicates a change in direction. In fact, take a look at the GLD chart and you'll see it's already headed lower. Elliot wave analysis is calling for a low in the $680-700 range (spot price) before the next wave up. You might want to wait and see how this plays out first. Ditto silver.
Thank you Brian!Are you available for a quick chat - I can be reached at [email protected]
It's very simple. Buy and hold only works in a bull market. And it doesn't take a genius to figure out we ain't in a bull market, sweetheart. You have to adapt your trading style to the type of market conditions you're dealing with.
Buy and hold is the default position for most investors because they know no other strategy, thanks to the 'friendly' advice of their brokers and the talking heads on TV. And most investors are lacking even a basic knowledge of investing, let alone how to deal with a deflationary depression, so they get caught by surprise. That's why they call it the "dumb money" vs. the "smart money".
In ANY kind of market, it's safer and more profitable to swing trade rather than holding long-term positions, in my opinion. In Buffet's case, it's not because he's dumb, far from it--he's very intelligent. It was more a question of timing. He didn't sell and collect his gains when he should have, and he bought back in too early before the bottom.
This is a DEPRESSION and the markets are doing funny things that even the likes of Buffet hasn't seen and doesn't know how to handle properly. So don't be too hard on him this time around. Eventually his approach will work again when the last bull throws in the towel and the financial system rot is purged out. 5 years? 10 years? Who knows?
Buffet warned that derivitives were weapons of mass financial destruction.
Then he invested in them.
I'd say his purchase of these weapons is nothing short of an endorsement lead the lemming followers over the cliff.
Swamp points out something very interesting. While Buffett may be held up as the "poster boy" for buy-and-hold investing, this might not be a true reflection of his investment style. From Drew Tignanelli on the Forbes website back on January 22:
"Warren Buffett is not a buy-and-hold investor, so why are you?
The concept of buy and hold is nothing more than a sales pitch that was created by the financial services industry in the last secular bull market preparing for the next secular bear market (what we are currently experiencing). The industry is the only one making money on the buy-and-hold myth. They even use Buffett as the poster boy for this philosophy, but when you read his biography Snowball and study his investment moves, he certainly is not a buy-and-hold investor."
"Unless you know the ‘Agenda’... you are trading in the dark! "
Old grifter's adage ... If you don't know who the "mark" is - you're the mark!
This country has no remaining honor - its been sold - likely at an inflated price.
It has become apparent over the last 18 months, that the Commodity and Equity Markets have been subject to severe manipulation. This may have been the case for a time much longer than this. Contrary to the conventional beliefs of economic theory that markets are too large to permit this...perhaps time has come to question these assumptions.
Given the above...and I am sure there are many who would defend the old paradigm while being sucked down a vortex of collapsing markets.. On Bloomber..comments about throwing out the technical charts are prolific.
So...if the 'Markets' are being manipulated...it leads to the question..To what End..?? Is there an Agenda at work here.??
Personally, I believe so. The terms,... New World Order, Global Currency etc. come to mind.
And the phrase..out of chaos..comes control. It is the full expression of the Hegalian Dialectic at work.
Unless you know the 'Agenda'..you are trading in the dark...T
Actually, a 10% decline due to investment in the stock market should be unacceptable for "the worlds greatest investor".
Buy and hold is dead, and there is a good reason for this shift; the speed of information. You see, for every generation through the baby boomers started their investment education, the fastest they could get financial information was through a news paper. Sure, big news would hit the nighly news, but they certainly didn't have CNBC or Bloomberg. Even TV is a relatively slow medium when compared to the internet. Combine that with the fact that to make a trade, these investors had to call their broker, who had to call the trade in; in todays terms, this is an incredibly slow "round trip."
Today, information is available instantly, and the markets are able to digest economic news in a heart beat. Traders can now make trades based on that information as fast as they can type a couple of letters and click a mouse button.
The speed of information isn't going to slow down, and, based on this I believe the stock markets will hold the increased levels of volatility that we've seen in the past decade.
Let me quote Peter Bernstein. These are selected paragraphs from the book "The Flight of the Long Run."
"The cold statistics have hardly been encouraging for the traditional [buy and hold] view. On a total return basis, the Ibbotson data show that the S&P 500 has underperformed long-term Treasury bonds for the last five-year, 10-year, and 25-year periods, and by substantial amounts."
"These data are not to be taken lightly. If the long-run expected return on bonds in the future were higher than the expected return on equities, the capitalist system would grind to a halt, because the reward system would be completely out of whack with the risks involved."
The article says Buffett is down less than 10% book value, for 2008.. This is failure? The clear end of his methodology? Come on, any of your readers,including me, would be glad to have achieved ONLY 10% decline.
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