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article imageWarren Buffett: 'Buy American. I Am.'

By Chris V. Thangham     Oct 17, 2008 in Business
Despite economic woes and the U.S. stock market collapse, Warren Buffett urges all Americans to keep buying stocks to keep the economy going.
Warren Buffett, the world's richest man, wants his American citizens to keep buying stock despite the market decline.
The U.S. economy is reeling, and seems to have spread into all sectors. Even unemployment is on the rise. So what is the solution to stop this decline? Buffett says buy American stocks. Buffett himself is buying stocks for his personal holdings (not the Berkshire Hathaway holdings) which consist of a composite of stocks, government bonds and securities.
Previously, Buffett only owned United States government bonds, but with the recent price of stock, he has converted them into stocks. If the market declines further, he will end up holding 100 per cent in stocks.
The reason Buffett gives this suggestion is because he practices the following principle when buying stocks: Be fearful when others are greedy, and be greedy when others are fearful.
When the stock market is down, most investors panic and sell their stocks (even experienced investors). Buffett said instead of looking solely at the short term, people should look at the long-term worthiness of the companies in which they invest. He wrote in his editorial in the New York Times:
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
He said short-term market performance is hard to predict, and instead wants Americans to focus on the long-term prospects. When the economy improves, stocks will definitely increase. Instead of regretting it later, he urges Americans to invest in stocks that look attractive and with companies whose future looks positive.
He compares the current economic downturn to the Great Depression era and World War II. He said:
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.
Buffett said the United States has endured several periods of crisis in the past such as the Great Depression, recessions, oil price shocks, flu epidemics, resignation of disgraced presidents, financial panics etc., and the country always came out of it. Despite all this, the Dow rose from 61 to 11,497.
If people have invested wisely, they would have earned lots of money. But because they panic when there is a crisis, they tend to fall short of their investment goals.
Because of the banks’ mismanagement of funds in the U.S., some people prefer their savings to be held in cash, but Buffett said cash is a bad investment because cash earns virtually nothing in the future and only depreciates in value. He says equities are a much better investment and will outperform cash over the next decade. He advises investors to follow hockey great Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been."
He concludes with the following:
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.
More about Buffett, Stocks, Buy
 
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