Buffett's Op-Ed a Year Later
Finding opportunity in turmoil
By Kaye A. Thomas
Posted October 16, 2009
Is spring over?
Many years ago, when J.P. Morgan was the leading figure in finance, someone asked him to predict how the stock market was going to perform. His response was concise and accurate: "It will fluctuate."
Perhaps he was dodging the question. Possibly he was grumpy that day. Or maybe he was just being a wise guy. Then again, he may have had a point. No one can predict short-term movements of the stock market with any degree of reliability, and investors who ignore this reality do so at their peril.
It was just one year ago, in the midst of an historic stock market meltdown, when the New York Times published and op-ed piece by legendary investor Warren Buffett. He echoed Morgan in stressing that he wasn't able to predict how the market will perform in the short-term. "I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now," he said, but then continued, "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."
Buffett's piece drew some skepticism. At the time, it seemed like the sky was falling. The Weekend Update segment on Saturday Night Live mentioned the article, with the deadpan comment that yes, this is a good time to buy stocks, if you're the richest man in the world.
Of course, this kind of reaction was precisely Buffett's point. To do well in the stock market, you have to be willing to bet against the crowd, investing when others are afraid to do so. To use Buffett's words, "Be fearful when others are greedy, and be greedy when others are fearful." The best time to buy is during a deep trough, and such a trough appears only when many investors are pessimistic or fearful.
People who took Buffett's advice were in for a rough ride. As it happens, I had moved a large portion of my retirement savings from bonds to stocks just a few days before his article appeared, and I can testify that watching the market slide another 26% in the following five months was not fun. From the bottom on March 9, though, the stock market has powered upward in one of the strongest rallies in history, and now stands about 13% above its level on the day Buffett's article appeared.
Many investors are still waiting for a clear signal that it's safe to get back in the stock market. Well, it's never safe, and even now it's possible the market will fall back to its March levels or lower. Investors holding stocks can take some comfort, though, in the amount of money sitting on the sidelines. The implication seems to be that Buffett was at least partly wrong: the robins have been chirping away for some time, but spring is far from over.
