Time to Buy

If not in India, at least in America, its the time to buy equities, opines the Oracle of Omaha. Probably the fear has not really percolated as much in India. The real “real estate” meltdown on the streets is yet to take place. Property prices are yet to correct by a lot. Slowdown is yet to hit the economy in terms of numbers. Probably the slowdown is already there. Nevertheless, there might soon be a time when the following might hold true for India too. Only that one needs to believe in the people of this country. India afterall is no America.

Op-Ed Contributor
Buy American. I Am.
By WARREN E. BUFFETT

Published: October 16, 2008

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.

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.

Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.

The Five minute management course

Yes, the markets are not good. But some humor won’t hurt during these times. 

Lesson 1: 

A man is getting into the shower just as his wife is finishing up her shower, when the doorbell rings. 

The wife quickly wraps herself in a towel and runs downstairs. 

When she opens the door, there stands Bob, the next-door neighbour. 

Before she says a word, Bob says, ‘I’ll give you $800 to drop that towel.’ 

After thinking for a moment, the woman drops her towel and stands naked in front of Bob, after a few seconds, Bob hands her $800 and leaves. 

The woman wraps back up in the towel and goes back upstairs. 

When she gets to the bathroom, her husband asks, ‘Who was that?’ 

‘It was Bob the next door neighbour,’ she replies. 

 

‘Great,’ the husband says, ‘did he say anything about the $800 he owes me?’ 

Moral of the story: 

If you share critical information pertaining to credit and risk with your shareholders in time, you may be in a position to prevent avoidable exposure. 

Lesson 2: 

A priest offered a Nun a lift. 

She got in and crossed her legs, forcing her gown to reveal a leg. 

The priest nearly had an accident. 

After controlling the car, he stealthily slid his hand up her leg. 

The nun said, ‘Father, remember Psalm 129?’ 

The priest removed his hand. But, changing gears, he let his hand slide up her leg again. 
The nun once again said, ‘Father, remember Psalm 129?’ 

The priest apologized ‘Sorry sister but the flesh is weak.’ 

Arriving at the convent, the nun sighed heavily and went on her way. 

 

On his arrival at the church, the priest rushed to look up Psalm 129. It said, ‘Go forth and seek, further up, you will find glory.’ 

Moral of the story: 
If you are not well informed in your job, you might miss a great opportunity. 

Lesson 3: 

A sales rep, an administration clerk, and the manager are walking to lunch when they find an antique oil lamp. 

They rub it and a Genie comes out. 
The Genie says, ‘I’ll give each of you just one wish.’ 
‘Me first! Me first!’ says the admin clerk. ‘I want to be in the Bahamas , driving a speedboat, without a care in the world.’ 
Puff! She’s gone. 

‘Me next! Me next!’ says the sales rep. ‘I want to be in Hawaii , relaxing on the beach with my personal masseuse, an endless supply of Pina Coladas and the love of my life.’ 

Puff! He’s gone. 

‘OK, you’re up,’ the Genie says to the manager. 
The manager says, ‘I want those two back in the office after lunch.’ 

Moral of the story: 
Always let your boss have the first say. 

Lesson 4 

An eagle was sitting on a tree resting, doing nothing. 

A small rabbit saw the eagle and asked him, ‘Can I also sit like you and do nothing?’ 
The eagle answered: ‘Sure, why not.’ 

So, the rabbit sat on the ground below the eagle and rested. All of a sudden, a fox appeared, jumped on the rabbit and ate it. 

Moral of the story: 
To be sitting and doing nothing, you must be sitting very, very high up. 

Lesson 5 

A turkey was chatting with a bull. 

‘I would love to be able to get to the top of that tree’ sighed the turkey, ‘but I haven’t got the energy.’ 
‘Well, why don’t you nibble on some of my droppings?’ replied the bull. They’re packed with nutrients.’ 

The turkey pecked at a lump of dung, and found it actually gave him enough str ength to reach the lowest branch of the tree. 

The next day, after eating some more dung, he reached the second branch. 

Finally after a fourth night, the turkey was proudly perched at the top of the tree. 

He was promptly spotted by a farmer, who shot him out of the tree. 

Moral of the story: 
Bull Shit might get you to the top, but it won’t keep you there.. 

Lesson 6 

A little bird was flying south for the winter. It was so cold the bird froze and fell to the ground into a large field. 

While he was lying there, a cow came by and dropped some dung on him. 

As the frozen bird lay there in the pile of cow dung, he began to realize how warm he was. 

The dung was actually thawing him out! 

He lay there all warm and happy, and soon began to sing for joy. 
A passing cat heard the bird singing and came to investigate. 

Following the sound, the cat discovered the bird under the pile of cow dung, and promptly dug him out and ate him. 

Morals of the story: 
(1) Not everyone who shits on you is your enemy. 

(2) Not everyone who gets you out of shit is your 
friend.

(3) And when you’re in deep shit, it’s best to keep 

your mouth shut! 

THUS ENDS THE FIVE MINUTE MANAGEMENT COURSE 

Was Indira Gandhi a visionary?

Lehman Brothers is already down. Bear Stearns and WaMu sold. AIG has been nationalised. Fortis too has been nationalised by BeNeLux (Belgium, Netherlands and Luxembourg) yesterday. Bradford & Bringley gulped by UK. Many to follow. One after another bank is being taken over by the respective governments.

India has a lot many of these nationalised banks which were private entities before Smt. Indira Gandhi’s rule. In retrospect, one can say what a visionary she was 😛 

People are becoming government servants overnight without any application for job 🙂 Next time when someone asks you “Do you work for a private firm or government organization?”, think twice before answering and add to that the clause “subject to change”.

Good Ones

It just so happened that I came across the following and considered it worth a share.

First: (an excerpt from WSJ’s news on Buffett’s USD 5 bn injection in Goldman)

Mr. Buffett received a call at 4:30 p.m. that Saturday from a private investment firm trying to assemble a group to buy the embattled financial giant. “I’m calling about Bear Stearns,'” the private investor began, according to Mr. Buffett. “Should I go on?'”

Mr. Buffett recalls thinking: “It’s like a woman taking off half her clothes and asking, ‘Should I continue?’ Even if you’re a 90-year-old eunuch, you let ’em finish.” Mr. Buffett says he passed on the proposed deal. Bear Stearns was bought by J.P. Morgan Chase & Co. the following day.

Second: (an excerpt from Bloomberg’s report on Buffett’s interview on CNBC)

“It’s nice to have a lot of money, but you know, you don’t want to keep it around forever,” Buffett said. “I prefer buying things. Otherwise, it’s a little like saving sex for your old age.”

Third: (Typical Sardarji joke)

“Hitler says, There is no word like IMPOSSIBLE in my dictionary” Sardar says:Ab bolne se kiya fayidah? “Jub kharidi thi tab hi check karna tha na”

Yet another extraordinary event

The yield on 3-month U.S. Treasury bills fell to 0.02 percent early afternoon New York trade on Wednesday amid investors’ panicked scramble into the safe haven of ultra short-dated government securities.

The 3-month U.S. Treasury bill yield last traded at 0.02 percent as an actual trade and had traded negative earlier yesterday. Its so bad that the common man does not want to keep his/her money with the banks. A negative yield would mean paying someone to keep your money safe. People are just panicking and they just want their principal. They are willing to deposit stuff only with the govt.

Credit has frozen. Morgan and Goldman on the verge of extinction? 

For India too things look not so good. Capital is flowing out of the country. RBI is finding it difficult to manage the Rupee. 

Its unbelievable how things have changed in the last few months. From India Rising to India Confused!

Risk

My definition of RISK: Reckless Investing Sans Knowledge!

We used to play “chidiya ud”, “tota ud”, “bhains ud”………

Now we will play, “lehman furrr”, “bear stearns furrr”, “merill furrr”, ……..

Extraordinary times ahead!

Shorting Nifty – Updates

I have been vocal about shorting Nifty when Sensex crosses 15000. It has crossed 15000 in today’s trade. Does it make sense to go short the Nifty? May be yes, but the probability has certainly decreased. Why? Because our dear Oil has been on a continuous downtrend since the last few days. At yesterday’s close, the Nymex Crude future was trading at $118.5, a good descent from its peak, in just a month’s period. Even though Nifty is expensive at current valuations, the market looks into the future. And if Oil keeps on falling down (no pun intended), Nifty has every expectation to attain its fair value in future, at a premium to current spot.

So I will wait and watch till the odds are heavily with me. That does not appear to be the situation right now. Having said that, a slight bad news can trigger a downfall even now given the expensive valuations. But, its a game of probability, chance. Lets see.

Time to short Nifty

Our dear Nifty keeps on meandering these days. It has come back to a level (4413.55) where it would make more sense to short it. It is trading at approximately 18x TTM (trailing twelve month) earnings with a slower growth outlook. Definitely expensive. Oil was also up in the last trade and is at $125 now. As I see, fundamentals still remain the same. RBI has hiked rates tad more than what most of the market gurus were expecting. In fact, I am more surprised at Nifty’s comeback.

Let it kiss 15000 and I am short with greater probability. For markets, I always speak in probabilities. I believe it is impossible to accurately predict the future.

Real estate in bad state – 2

RBI governor, Mr. Y. V. Reddy has hiked the Repo rate by 50 bps and CRR by 25 bps. Repo rate is the rate at which our banks borrow rupees from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases borrowing from RBI becomes more expensive.

More pain for real estate and more people on your doors with yet another lucrative deal (on papers and spreadsheets of course).

Since I had bought a house sometime ago, even I am going to bear the pain of increased EMIs, however, I appreciate the decision given the uncontrollable inflation. Just hoping that inflation cools down preventing any further rate hikes.

The Dhando Investor

Finished reading the simple yet excellent book by Mohnish Pabrai. I believe its a good read even for those who are not a bit interested in stock picking. He talks about Patels, Mittal, Branson and himself highlighting the common gene of value picking in businesses they have done.

Not too thick also, a one day read.