Friday, October 17, 2008

Buffett is Buying, But Should We Be Buying?

Warren Buffett confirmed that he is indeed buying more US equities during this crazy period of volatility. The question though, is is it a good time for you and I to buy US equities? The answer is yes. And no. And maybe. Does that help? Here's the thing. Many stocks are at their cheapest level in years. Sentiment in the market is near all time lows, and much of the bad news is already out. This typically signals a good time to buy some stocks. But it depends on your situation. Are you dealing with money that you won't be needed to touch in the next couple of years? Because that's the kind of money that should be moving into the market now. If you're not retiring for many years, or are willing to hold through more periods of volatility and uncertainty, than yes, its a good time to buy.

But if you're looking at a shorter time period, or are looking for a quick trade, its not a good time to buy. There are too many factors working against you. Hedge funds and mutual funds are under great stress right now, as they are facing investor redemptions and margin calls. This forces them to dump large amounts of stock which is contributing to these wild swings. I read earlier this week that hedge fund king Steven Cohen is moving largely to cash. He's holding billions in investor's money. So it could be a bumpy ride as much of the economy is soft, and we still haven't seen the end of the banking crisis.

But to someone like Buffett, who holds stocks for decades while knowing he won't need the cash in the meantime, its a great time to buy. He can wait it all out knowing he got a good deal on his current buys. He's betting on history, and that says that the US markets will come back.

For me personally, I'm looking to buy some stocks and index funds with my retirement money (which I won't need for many years), and am not buying in my cash accounts.

There's my two cents worth. Have a great weekend!

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