When Buffett Was Crazy and We Were Scared
Just over five years ago, global financialinstitutions appeared on the verge of collapse and stocks were sinking, WarrenBuffett wrote an op-ed in The New York Times that seemed, at that time, out oftouch with the pulse of the market. He encouraged investors to buy.
Buy? Mr. Buffett, then 78, appeared tofinally have succumbed to a senior moment.
Of course, it was great advice.
Unfortunately, not enough of us followedit.
'The financial world is a mess, both in theUnited States and abroad, ' Mr. Buffett wrote. 'Its problems, moreover, havebeen leaking into the general economy, and the leaks are now turning into agusher. In the near term, unemployment will rise, business activity will falterand headlines will continue to be scary.'
But, he added, he was buying stocks for hispersonal account.
'A simple rule dictates my buying: Befearful when others are greedy, and be greedy when others are fearful, ' Mr.Buffett wrote. 'And most certainly, fear is now widespread, gripping evenseasoned investors.'
We all know what has transpired since. TheDow Jones Industrial Average has nearly doubled. It is up 88% and closedTuesday at a record high of 15680. The S&P 500 Index has performed evenbetter. It's up 97% to above 1770.
Mr. Buffett was not only right - and rightin a big way - about the buying opportunity. He was right about the fear. Mostof us stayed fearful for too long.
After pouring an average of $404 billionannually into mutual funds through 2008, investors pulled $150 billion out in2009, according to the Investment Company Institute.
Since Mr. Buffett told investors to buy,investors have pulled $309 billion from total equity funds and a whopping $448billion from domestic equity funds, according to ICI.
But what's alarming is the fear haspersisted.
A survey released this week by assetmanager BlackRock Inc. found that most Americans still are skittish when itcomes to investing in anything. They keep 48% of their investible assets incash, just 18% in stocks and 7% in bonds.
Now, there's a feeling among investors thatthey've missed out. Thirty-six percent of respondents said they wished they hadinvested for retirement sooner.
Investors have come back this year, as theyear-long rally suggests, but they've come back after most of the gains weremade.
Investors so far this year have added $106billion to equity funds, but it has hardly made up for the selling of the lastthree years. From August 2010 to August 2013, investors have pulled $195billion from equity funds, according to ICI -- and that includes recent buying.
There's really only one conclusion to drawfrom this. Despite Mr. Buffett's reputation as an 'oracle' of investing, wedon't listen.
To be fair, there was plenty of evidence toignore him. Less than six months after his advice was published, the S&P500 fell another 24%. The Dow Jones Industrial Average sank 20%.
Even after the rally started slowly andsurely thereafter, a series of events made stock investing appear dicey.
There was the Greek and European debtcrisis. French, Cypriot and Italian bank crises. Falling home prices. The'flash crash' in May 2010. The federal government budget 'sequestration.' Therehave been multiple stand-offs in Washington over the debt ceiling and, mostrecently, a government shutdown that put a kink in the recovery.
Yet none of these troubles really sank thebroader market for an extended period of time. Volume was light in the markets,but what little action that was happening was predominantly buying.
For those few who heeded Mr. Buffett'sadvice, it has been a very good five years.
For the rest of us, we were fearful when weshould have been greedy.
