About a year ago, Warren Buffet wrote an Op-Ed in the NYT: Buy American. I am.
I was reminded of this today when a friend mentioned that in that article Mr. Buffet had said that the market will move up, perhaps significantly, long before sentiment or the economy turns up. And thatâ€™s happened now.
When this article was published, I spoke to several people and read several posts and comments about how Mr. Buffet was wrong this time, or even if he was right, how the common man couldnâ€™t follow his advice. Some of those arguments made sense, some didnâ€™t, and I thought it would make an interesting post to list out a few of those about a year after they were made.
- I got no money left: By far the most common argument was that people had already lost a big part of their savings, and had nothing else left to risk on stocks anymore. For someone who lost half his lifeâ€™s savings, it makes little difference what one of the worldâ€™s most successful investor says.
- He gets deals that the common man canâ€™t get: Mr. Buffet struck deals that had terms especially sweetened for him. Itâ€™s not just because of his money, but also because his show of support turned the sentiment hugely in favor of a company. It is simply not possible for the common man to get deals as good as the ones he got.
- Look at Japan: There were several people who took Japanâ€™s lost decade as an example and asked what happens if US goes the Japanese way? The Japanese Nikkei was around 39,000 at its peak, and in the twenty or so years since it touched the peak, it never went back to that number.
- Itâ€™s different this time: A lot of people said that Mr. Buffet has lost it, and these times are markedly different from the times that he prospered in. It struck me that everyone who said this to me also observed that America hardly produces anything these days, and thatâ€™s not how it used to be in most of Mr. Buffetâ€™s lifetime.
- The market is still down: I didnâ€™t read this argument anywhere, but two of my relatives told me that Mr. Buffet was wrong because the market kept going south despite his article. This was clearly – wrong line of reasoning, because he was not talking about the short term at all, and I am fairly sure the people who said this â€œheardâ€ about the article, and didnâ€™t read it themselves. In their defense though, the market did fall quite a bit in the following months.
A lot of people agreed with his advice too and thatâ€™s quite evident if you read the comments on the original article itself.
Since Mr. Buffet is really talking about 5, 10 or 15 years in the future when he wrote that article, it is still too early to judge whether he was right or his detractors were. Looking at how the market has behaved recently though, I have a feeling he may be right once again.