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”