Friday, October 17, 2008

Enter the Dragon 
Buffett's going long!

If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.


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.


That said, Buffett can afford to be wrong. Your mileage (and mine) may vary. My own belief is that those nearing retirement should not be 100% equities, and people Warren's age with limited nest eggs should not be 100% equities.

Look...Warren can take a 5% bath in equities, and continue to draw his customary 100k in income each year and do just fine. He's not running a 4 or 5 percent spend down ratio on his assets each year simply in order to make basic living expenses. His vast personal wealth allows him to be more aggressive with his portfolio than you can.

My own approach - and again, your mileage may vary - is to maintain roughly the same asset allocation I had before the bear market. Which also means selling some fixed income and cash assets in order to purchase deeply discounted equities (I use indexes primarily right now, but that may change).

My personal situation is quite a bit different as I have some investments to make in my own business before I can pick up these bargain stocks, but for the most part, I still agree with a robust insurance foundation against disability, catastrophic illness, death, or the need for long term care, and then for the accumulation portion of a portfolio, a conservative split between stocks and bonds with a healthy emergency fund set aside.

Don't panic. Adjust the helm to put you on the course you were charting prior to the crash.

Your destination didn't change, so neither does your bearing. The only thing that may have changed is the speed with which you will reach your goals.

Splash, out


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