Tuesday 5 August 2014
Stay in the Stock Market, says Warren Buffet
Stay in the Stock Market, says Warren Buffet
Many investors will feel jittery if they read the news especially as the Ukraine crisis drags on and diplomats scramble to find a peaceful solution to the crisis that has pitted Russia against the U.S. and the rest of the G7 countries. The most recent development in the crisis was that the Russian envoy to the UN has told the international body that Russia “does not want” a Ukraine war all while clashes broke out in parts of the country according to the BBC.
The crisis in Ukraine is already having an effect on the markets. The Wall Street Journal reported that Asian stock markets are lower due to the crisis while the Associated Press has also reported that the U.S. stock market has dipped due to the crisis.
Investors are naturally unnerved by news of the possibility of another war. The rational person would try to hold on to their cash in times of uncertainty. The risk triggers a fight or flight response and some investors choose to sell their stocks and hold on to their cash.
What Warren Buffet Thinks About the Ukraine Crisis and Investing in Stocks
In an interview with CNBC’s Squawk Box, Berkshire Hathaway Chairman and CEO Warren Buffett said the crisis in Ukraine had actually had a positive effect on his business. A stock that Buffett had been looking to acquire soon had actually fallen in price in London. Buffett said he “felt good” that the stock that they we’re buying was cheaper. When asked whether he will buy more, he said “absolutely.”
Buffett’s remarks about buying stocks during a time of uncertainty speak of his view about holding onto cash or investing in stocks even in a time of war. He told CNBC that you can be sure the value of money will go down if there was a very major war. The Oracle of Omaha said holding cash is the last thing (that investors will) want to do in a war and that (investors) will want to own a farm or an apartment house instead.
The famed investor advised investors to own securities instead of cash during a war. He said the stock market actually advanced during the Second World War. Buffet even added that he bought his first stock just after the attack on Pearl Harbor in 1942.
An index fund that mirrors the overall market’s performance can be a great way for even non experts to invest in the stock market advised Buffett. Buffett recommends the Vanguard S&P 500 stock index fund for these types of investors.
- See more at: http://www.comparehero.my/blog/stay-stock-market-says-warren-buffet/#sthash.tDIM3gBy.dpuf
Many investors will feel jittery if they read the news especially as the Ukraine crisis drags on and diplomats scramble to find a peaceful solution to the crisis that has pitted Russia against the U.S. and the rest of the G7 countries. The most recent development in the crisis was that the Russian envoy to the UN has told the international body that Russia “does not want” a Ukraine war all while clashes broke out in parts of the country according to the BBC.
The crisis in Ukraine is already having an effect on the markets. The Wall Street Journal reported that Asian stock markets are lower due to the crisis while the Associated Press has also reported that the U.S. stock market has dipped due to the crisis.
Investors are naturally unnerved by news of the possibility of another war. The rational person would try to hold on to their cash in times of uncertainty. The risk triggers a fight or flight response and some investors choose to sell their stocks and hold on to their cash.
What Warren Buffet Thinks About the Ukraine Crisis and Investing in Stocks
In an interview with CNBC’s Squawk Box, Berkshire Hathaway Chairman and CEO Warren Buffett said the crisis in Ukraine had actually had a positive effect on his business. A stock that Buffett had been looking to acquire soon had actually fallen in price in London. Buffett said he “felt good” that the stock that they we’re buying was cheaper. When asked whether he will buy more, he said “absolutely.”
Buffett’s remarks about buying stocks during a time of uncertainty speak of his view about holding onto cash or investing in stocks even in a time of war. He told CNBC that you can be sure the value of money will go down if there was a very major war. The Oracle of Omaha said holding cash is the last thing (that investors will) want to do in a war and that (investors) will want to own a farm or an apartment house instead.
The famed investor advised investors to own securities instead of cash during a war. He said the stock market actually advanced during the Second World War. Buffet even added that he bought his first stock just after the attack on Pearl Harbor in 1942.
An index fund that mirrors the overall market’s performance can be a great way for even non experts to invest in the stock market advised Buffett. Buffett recommends the Vanguard S&P 500 stock index fund for these types of investors.
- See more at: http://www.comparehero.my/blog/stay-stock-market-says-warren-buffet/#sthash.tDIM3gBy.dpuf
Has Warren Buffett Nailed Another Market Top?
I know. I know. Warren Buffett is not a market-timer, has no idea what the market will be doing this year, or next, or at any specific time in the future. Or so he says, and the media seems to accept it as fact.
So we probably shouldn’t pay attention to what he is doing and saying now.
However, in spite of what he says, Buffett has a remarkable track record of accurately calling the serious market tops and bottoms.
That record began in 1956, when he launched Buffett Partnership Ltd., a limited partnership investment company, similar in make-up to the hedge-funds of today. He managed that fund with major success, with performance that would have turned an investor’s $10,000 in 1957 into $300,000 by 1969.
He then pulled off one of the most exquisite market-timing moves of all time.
After making those huge gains in the 1960’s bull market, and while investors were still piling into the stock market with excitement, Buffett liquidated his partnership fund and returned their significantly elevated assets to his investors, telling them they’d probably be better off in government bonds for the next several years.
And indeed, the horrible 1970’s decade began almost immediately, with the Dow losing 35% in the 1969-70 bear market.
Buffett stayed away from the stock market, in spite of the 1969-1973 bull market lifting the Dow back to its 1969 peak and somewhat higher. He settled for managing the businesses he had acquired control of, including textile mill Berkshire Hathaway (which he soon began expanding into the insurance industry).
And then, with another superb market-timing move, after the Dow had lost 45% of its value in the 1973-74 bear market, Buffett returned to the stock market.
In a famous 1974 interview in Forbe’s magazine, he said, “This is the time to start investing again.” And he did so big-time, using Berkshire Hathaway as the holding company for his investments.
Were those two market moves the end of his market-timing history? Not at all.
Thanks to the powerful 1990’s bull market, by 1999, Berkshire Hathaway had certainly become way too big to be able to liquidate if Buffett became bearish on the market.
But at what turned out to be the top of that spectacular 1990’s bull market, in 1999 Buffett raised Berkshire’s cash level to a huge $48 billion.
He didn’t describe it as market-timing of course, simply saying “I just can’t find anything I want to invest in right now.”
At the same time, in September, 1999, as reported in Fortune magazine, he said, “What I am about to say – assuming it’s correct – will have implications for the long-term results to be realized by American stock-holders. . . . . Over the next 17 years, equities will not perform anything like – anything like – they have performed over the past 17 years. . . If I had to pick a probable annual return it would be 4% after inflation, and if 4% is wrong, I believe the percentage is as likely to be less as more.”
Exquisite market timing?
The market almost immediately rolled over into the severe 2000-2002 bear market and the so-called “lost decade”.
So should we be concerned that, according to the latest SEC filings of Berkshire Hathaway, Buffett has again raised and is sitting on, $49 billion in cash? And in a recent interview said, “Stocks have moved a long way. They were very cheap five years ago. That’s been corrected. . . We’re having a hard time finding things to buy.”
Of course, once again holding $49 billion in cash is not due to ‘market-timing’, but just because he’s not able to find any stocks cheap enough to buy.
And maybe he’s changed his mind from his 1999 prediction about market problems for 17 years. Besides as he says, he’s not a market-timer and never has any idea what the market will do. Yeah.
He has my attention.
Sy is president of StreetSmartReport.com and editor of the free market blog Street Smart Post. Follow him on twitter @streetsmartpost. He was the Timer Digest #1 Gold Timer for 2012 (Gold Timer of the Year), as well as the #2 Long-Term Stock Market Timer.
http://www.forbes.com/sites/sharding/2013/09/20/has-warren-buffett-nailed-another-market-top/
For Warren Buffett, the cash option is priceless
The Globe and Mail - September 24, 2012
For Warren Buffett, the cash option is priceless
By BOYD ERMAN
The Oracle of Omaha's company has $41-billion sitting around earning negligible interest. But his method of investing does not make this a waste of funds
If holding cash in your portfolio for little return is driving you crazy, maybe it's time to look at it the way Warren Buffett does.
Mr. Buffett, the world's most successful (and richest) value investor, is sitting on almost $41- billion (U.S.) of cash at his Berkshire Hathaway holding company, the most in a year. Partly, that heap of greenbacks is a safety blanket. But it's something more. As with most matters Buffett, the strategy is more complicated than it looks, Alice Schroeder says.
She should know. The former Wall Street analyst may know more about Mr. Buffett than anyone outside his family and inner circle: She spent more than 2,000 hours with him while writing The Snowball: Warren Buffett and the Business of Life.
Ms. Schroeder argues that to Mr. Buffett, cash is not just an asset class that is returning next to nothing. It is a call option that can be priced. When he thinks that option is cheap, relative to the ability of cash to buy assets, he is willing to put up with super-low interest rates, said Ms. Schroeder, who followed Mr. Buffett for years before she became his biographer.
"He thinks of cash differently than conventional investors," Ms. Schroeder says. "This is one of the most important things I learned from him: the optionality of cash. He thinks of cash as a call option with no expiration date, an option on every asset class, with no strike price."
It is a pretty fundamental insight. Because once an investor looks at cash as an option – in essence, the price of being able to scoop up a bargain when it becomes available – it is less tempting to be bothered by the fact that in the short term, it earns almost nothing.
Suddenly, an investor's asset allocation decisions are not simply between earning nothing in cash and earning something in bonds or stocks. The key question becomes: How much can the cash earn if I have it when I need it to buy other assets that are cheap, versus the upfront cost of holding it?
"There's a perception that Buffett just likes cash and lets cash build up, but that optionality is actually pretty mathematically based, even if he does the math in his head, which he almost always does," Ms. Schroeder said last week in Toronto, drawing on knowledge gained during the five years she spent working on The Snowball.
Much of that time was spent on the couch in his office in Omaha, Neb., where she said nothing much happens but a lot of reading and thinking. In that time, and the hours spent digging through his files, she said she discovered that while Mr. Buffett likes to speak in folksy aphorisms, in fact, his investing is very complicated.
For someone driven by a quest to find things that are undervalued, as Mr. Buffett is, knowing the price of cash as a call option is the key. The "call premium" on the cash option is essentially the opportunity cost. It is the difference between what he can earn somewhere else and the nil return on holding cash, said Ms. Schroeder, addressing the crowd at the annual Investment Industry Association of Canada conference, after which she sat down for a Canadian exclusive interview.
For Warren Buffett, the cash option is priceless
By BOYD ERMAN
The Oracle of Omaha's company has $41-billion sitting around earning negligible interest. But his method of investing does not make this a waste of funds
If holding cash in your portfolio for little return is driving you crazy, maybe it's time to look at it the way Warren Buffett does.
Mr. Buffett, the world's most successful (and richest) value investor, is sitting on almost $41- billion (U.S.) of cash at his Berkshire Hathaway holding company, the most in a year. Partly, that heap of greenbacks is a safety blanket. But it's something more. As with most matters Buffett, the strategy is more complicated than it looks, Alice Schroeder says.
She should know. The former Wall Street analyst may know more about Mr. Buffett than anyone outside his family and inner circle: She spent more than 2,000 hours with him while writing The Snowball: Warren Buffett and the Business of Life.
Ms. Schroeder argues that to Mr. Buffett, cash is not just an asset class that is returning next to nothing. It is a call option that can be priced. When he thinks that option is cheap, relative to the ability of cash to buy assets, he is willing to put up with super-low interest rates, said Ms. Schroeder, who followed Mr. Buffett for years before she became his biographer.
"He thinks of cash differently than conventional investors," Ms. Schroeder says. "This is one of the most important things I learned from him: the optionality of cash. He thinks of cash as a call option with no expiration date, an option on every asset class, with no strike price."
It is a pretty fundamental insight. Because once an investor looks at cash as an option – in essence, the price of being able to scoop up a bargain when it becomes available – it is less tempting to be bothered by the fact that in the short term, it earns almost nothing.
Suddenly, an investor's asset allocation decisions are not simply between earning nothing in cash and earning something in bonds or stocks. The key question becomes: How much can the cash earn if I have it when I need it to buy other assets that are cheap, versus the upfront cost of holding it?
"There's a perception that Buffett just likes cash and lets cash build up, but that optionality is actually pretty mathematically based, even if he does the math in his head, which he almost always does," Ms. Schroeder said last week in Toronto, drawing on knowledge gained during the five years she spent working on The Snowball.
Much of that time was spent on the couch in his office in Omaha, Neb., where she said nothing much happens but a lot of reading and thinking. In that time, and the hours spent digging through his files, she said she discovered that while Mr. Buffett likes to speak in folksy aphorisms, in fact, his investing is very complicated.
For someone driven by a quest to find things that are undervalued, as Mr. Buffett is, knowing the price of cash as a call option is the key. The "call premium" on the cash option is essentially the opportunity cost. It is the difference between what he can earn somewhere else and the nil return on holding cash, said Ms. Schroeder, addressing the crowd at the annual Investment Industry Association of Canada conference, after which she sat down for a Canadian exclusive interview.
"There are times when he feels like that option premium is really cheap, compared to the intrinsic value of the option itself," she says.
The option theory of cash is something Mr. Buffett does not tend to get into when he is up on stage at his annual investor meeting, dishing out his homespun take on life and investing. That's probably because Mr. Buffett views himself as a teacher, and he wants to reach a broad audience, she says.
"Generally speaking, he likes to keep concepts simple," Ms. Schroeder says. "He says, 'I like to have all that cash around because you can use it.'"
However, it is a lesson that Ms. Schroeder said she wishes more people would learn. For many investors, there is a sense that holding cash is a cop-out. Investors who see their fund managers holding a lot of cash tend to think that they are not getting their money's worth, which is wrong, she says.
"If investors would realize that what they are paying for is someone to have the expertise to know when to buy a call option called cash, and move in and out of that, then perhaps there might be more value placed on that service."
"Generally speaking, he likes to keep concepts simple," Ms. Schroeder says. "He says, 'I like to have all that cash around because you can use it.'"
However, it is a lesson that Ms. Schroeder said she wishes more people would learn. For many investors, there is a sense that holding cash is a cop-out. Investors who see their fund managers holding a lot of cash tend to think that they are not getting their money's worth, which is wrong, she says.
"If investors would realize that what they are paying for is someone to have the expertise to know when to buy a call option called cash, and move in and out of that, then perhaps there might be more value placed on that service."
Monday 4 August 2014
Buffett is a happy man. In the second quarter of this year, his firm, Berkshire Hathaway, made $6.4 billion in net profit, the most it has ever made in a three-month period
Warren Buffett’s firm just made the most money ever in a single quarter
Tap to expand image
Warren Buffett is a happy man. In the second quarter of this year, his firm, Berkshire Hathaway, made $6.4 billion in net profit, the most it has ever made in a three-month period. To put that in perspective, ExxonMobil made $8.8 billion and Apple made $7.7 billion in the same period—and they make oil and some of the world’s most beloved consumer devices, respectively.
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The firm’s profits in the second quarter were boosted by its stakes in other companies, as the share prices of most of the American companies Buffett invests like Wells Fargo have soared, and by gains from derivatives. US railroads, through the company it owns, BNSF, contributed almost $1 billion to the company’s bottom line. Berkshire’s more expensive Class A shares have risen 6% so far this year, and are worth more than $180,000 each.
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Berkshire Hathaway’s huge bump in earnings exceeds the $5.1 billion that the firm made in a single quarter back in 2005. And it’s a long way from 2009, when it posted its first quarterly loss in eight years during the financial crisis. Last year, Berkshire even acquired a beloved ketchup maker. “With Heinz, Berkshire now owns 8 1/2 companies that, were they stand-alone businesses, would be in the Fortune 500,” Buffett said in his last annual report. “Only 491 1/2 to go.”
http://qz.com/244132/warren-buffetts-firm-just-made-the-most-money-ever-in-a-single-quarter/
Sunday 3 August 2014
Could this be the crash we have all been waiting for?
A World Of Worry
There are plenty of reasons for stock markets to fall. The Ukraine crisis is intensifying, as the US and Europe sharpen up their sanctions. The eurozone is sliding ever closer to deflation, and today's manufacturing data disappointed (again). Argentina is in default. The IMF has been warning of a China bubble. The Middle East horrorshow is plunging new depths.
Heard
In May, the FTSE 100 hit a peak of 6866. Right now, it trades at a three-and-a-half month low of 6644, some 3.2% off its peak.
That isn't a crash, yet.
But it still makes today a marginally more tempting to buy, say, a FTSE 100 tracker, as you are getting 3.2% more stock for your money.
And there could be more discounts to follow.
But the biggest bargains can be found in individual company stocks.
Big Names, Big Discounts
If you like buying stocks at bargain prices, today's wobbles have tossed up a host of big names at low prices.
Barclays (LSE: BARC) has seen its share price has fall nearly 25% to 225p since January. A string of scandals and regulatory investigations, falling investment banking profits, and the wider economic uncertainty have all dented confidence, but today's discount looks a great time to buy.
At 479p, oil major BP (LSE: BP) is down nearly 9% since late June, as its 20% stake in Kremlin-owned Russian oil company Rosneft leaves it more exposed to US and European sanctions than any other British company.
Two other FTSE 100 stalwarts, GlaxoSmithKline (LSE: GSK) and Tesco (LSE: TSCO), are down 16% and 30% respectively over the past year. Falling profits and the Chinese bribery scandal have torpedoed the Glaxo share price, while cash-strapped customers, cut-price German competition and a loss of strategic direction have sunk Tesco.
The FTSE 100 is falling, and could fall further still. But there's no need to hang around, there are already plenty of bargains to be had.
https://uk.finance.yahoo.com/news/stock-markets-falling-time-buy-134150048.html
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