U.S. Stocks About To Make U-Turn?

I think it's about time for a compelling argument that the stock market could be making a turn around...right? Well like it or not Chrisopher Hill, editor of Investorazzi.com, has come to make an argument that he'll be defending in the comments section! So if you think otherwise tell him why!


Equities have been on a roll these past two months. On Monday, the Standard & Poor’s 500 Index, which is a meaningful benchmark to investors because it generally reflects the movements of the U.S. stock market as a whole,  reached a four-month high to close at 907.  The tech-heavy Nasdaq Composite Index also has been on a tear, finishing Monday at 1,763--- up 11% for the year.

At this point, many traders and investors are asking, is the current rally in equities sustainable?  Or, are U.S. stocks about the make a U-turn and head south?

Recently, a couple of legendary investors shared their views on where stocks might be heading.

Back in early March, Marc Faber, who is famous for warning clients to get out of the U.S. stock market a week before the October 1987 crash, predicted that U.S. stocks would rally.  On April 13, the money manager told a Bloomberg Television audience:

Continue reading "U.S. Stocks About To Make U-Turn?"

Buy-And-Hold No Longer Gold?

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”

Investing Legends Buying Up Stocks

For today's guest blog post I decided to contact Christopher Hill from Investorazzi.com. I emailed him and asked him his opinion on stocks, and what the experts are doing. Christopher has been running Investorazzi.com for quite a while now and to say I'm a fan is an understatement. Check out his blog post below and check out his site...it's worth the visit!


Investing Legends Buying Up Stocks

To say U.S. equities have been beaten up lately is an understatement.  As I write this post Monday evening:

* The Dow Jones Industrial Average is off almost 38 percent for 2008 (See CHART here)
* The Standard & Poor's 500 Index is down 42 percent for the year (See CHART here)
* The Nasdaq Composite Index is now at a five-year low (See CHART here)

Turn on the news and you’d think investors couldn't get out of the stock market fast enough.  Remember that old story about someone's cousin losing their shirt from investing in commodities?  I suppose some are saying that about equities these days.

Yet, in times like these I remember a certain saying.  "Buy when there's blood in the streets."  Or, as legendary investors Jeremy Grantham and Warren Buffett might say, on the Street.  For those of you who aren't familiar with Jeremy Grantham, he is the Chairman of Boston-based GMO, a privately-held global investment firm with $152 billion under management as of the end of 2007.  The British money manager, whose clients have included U.S. Vice President Dick Cheney and former U.S. presidential candidate John Kerry, has made some terrific calls in the past quarter century:

* In 1982, said the U.S. stock market was ripe for a “major rally.” That year was the beginning of the longest bull run ever.
* In 1989, called the top of the Japanese bubble economy.
* In 1991, predicted the resurgence of U.S. large cap stocks.
* In 2000, correctly called the rallies in U.S. small cap and value stocks.
* In January 2000, warned of an impending crash in technology stocks, which took place two months later.
* In April 2007, nailing the current crisis, he wrote to shareholders, "From Indian antiquities to modern Chinese art, from land in Panama to Mayfair; from forestry, infrastructure and the junkiest bonds to mundane blue chips; it’s bubble time!"

As for Warren Buffett?  Well, who hasn't heard of the "Oracle of Omaha?"  Buffett, the richest person in the world with more than $62 billion (according to the 2008 Forbes list), amassed his multibillion dollar fortune mainly through investing in stocks and buying companies through Berkshire Hathaway, where he serves as Chairman.

These days, Grantham and Buffett both sense blood on the Street--- and are acting accordingly.  Paul J. Lim of the New York Times wrote this past Sunday:

“Mr. Grantham said in an interview that even though his firm began buying stocks in early October, after prices fell to attractive levels, the market had a tendency to “overshoot” during sell-offs… Mr. Grantham noted that GMO began buying only after its portfolios had fallen below some key thresholds. For example, in GMO’s global balanced portfolio of stocks and bonds, the firm’s minimum allocation to equities is usually 45 percent. But after the market sell-off, that equity allocation dipped to around 38 percent. So once stock prices began to look attractive, GMO started rebalancing back into what it regards as the most undervalued types of equities: emerging markets stocks and high-quality domestic blue chip shares. After a few rounds of purchases, stocks now make up around 55 percent of GMO’s global balanced portfolio.

Mr. Grantham says that although he doesn’t know how well he timed his purchases, ‘we do know that seven years out, these will be good purchases for us.’”

Even if stock prices continue to decline, Grantham told Douglas Appell of Pensions & Investments back on October 27, he still plans on buying more equities.  Appell wrote:

“Going forward, Mr. Grantham said GMO will be ‘steady buyers as the market goes down.’ The firm risks being too early, but will be in position ‘to make a ton of dough’ when the inevitable recovery comes, he said.”

Like Grantham, Buffett has also been actively acquiring shares of companies.  And like the British investor, he hasn't made a secret of his intentions.  In fact, back on October 17 he wrote in the New York Times:

“The financial world is a mess, both in the United States and abroad. Its 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.”

And what was it that triggered Buffett's latest spending spree?  The man some call “The World’s Greatest Investor” explained:

“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.”

Blood on the Street, perhaps?  Morgan Housel of the financial website Motley Fool wrote Monday:

“What's the Oracle been up to lately? In the past quarter, Berkshire purchased about 24 million shares of ConocoPhillips (NYSE: COP), upping its existing stake to 84 million shares -- currently worth just less than $4 billion. As of the filing date of Sept. 30, ConocoPhillips stood as Berkshire's fourth-largest common stock holding, behind Wells Fargo (NYSE: WFC), Coca-Cola (NYSE: KO), and Procter & Gamble (NYSE: PG).

That's a pretty serious vote of confidence. Conoco shares have crashed more than 40% in the past three months, as global economies screech to a halt. In the short term, that pullback is probably justified -- energy was getting ahead of itself for a while. So did Buffett buy at the peak? Nah. For long-term investors who want to make the bold assumption that energy isn't just a passing fad, there are some serious, serious bargains being made right now.

Berkshire's other purchases in the quarter included a new 2.9 million-share investment in electrical goods manufacturer Eaton, as well as a 1.8 million-share increase in its existing stake in NRG Energy (NYSE: NRG).”

Should stock prices continue to fall, I have a feeling we’ll hear a lot more about these two investing legends--- especially regarding their latest acquisitions.

Christopher Hill

Editor Investorazzi.com