Finally � it seems like the markets are starting to clue in on the tireless public comments Warren Buffett and Charlie Munger have been making over the last several years to talk down the markets to more reasonable levels. They have been taking swipes at the market�s overvalued state now since 1999 (e.g., Buffett�s comments in the Fortune articles of 99 and 01, their dual drubbing of the unethical and greedy ceos and horrible and unfair acctng rules, Buffett�s desires to invest overseas where better values are found � his purchase of Allied Domecq and his 01 trip) in the hope that the indexes will be priced closer to intrinsic value so they can start putting some of that huge bond horde to work. Buffett�s other recent comments and activities (stating a nuclear terrorist attack occurring with 100% certainty in the U.S., the squarz sale, and buying s&p puts � I think he did so according to BRK message board) have all served to draw more attention to a couple salient points, 1)MARKETS ARE STILL OVERVALUED and 2) FUTURE STOCK MARKET RETURNS WILL BE UNEXCITING.
Dear investors: accept these points now, get over it and plan accordingly. Do I ( a BRKb shareholder) have a problem with their comments � not at all. I am in complete agreement with what Buffett and Munger are doing. They give their honest opinions of the markets when asked, tip their investment hands for all to see, and still whip Wall Street�s investment performance, despite the fact that it operates in the exact opposite manner. They�re straight shooters, calling the market and its follies as they see them, and turning out once again to be right on the money. In fact, their respected thoughts and opinions will hopefully shine a brighter light on these issues and inspire the politicians to finally make some long overdue changes that should improve corp governance, accountability, and ethics in corp America. Amen.
Proof is in the Pudding � Equities are Out. At the end of 1998, cash and bonds made up 47% of Brk's portfolio, and equities the rest. By the end of 2001, cash and bonds made up 59%, and equities fell to 41%. BRK�s investment portfolio since 1998 has become increasingly overweighted towards bonds during this time period.
Being fearful when others are greedy, and greedy when they are fearful has proven to be very successful strategy for BRK. Their timing is rarely perfect, but they hardly ever get it wrong. While I�ve made more than my share of investment mistakes over the years, BRK�s philosophies have proven timeless and golden, so I�m not going to second guess them now � especially when a simple logical argument dictates a defensive portfolio is right (see Fortune article Dec 01).
Despite the slow death of equities we�re going through, there are still way too many bulls out there, economic/market gurus, and goofy market commentators (like Jim Cramer and other publicity hounds) to say were at a time to start buying stocks. The markets have yet to achieve that fearful state � although last September certainly seemed like we were there, BRK's cash and bond position actually increased from the prior year (as of 12/31). Could this reflect their opinion that the markets at their Sept. low levels of DJIA 8000 and NAZ 1300 are still not a buy? I think it probably does, and for that reason I wait keeping an eye on a few good stocks � bored, but patiently, for the ever elusive �fat pitch� which is sure to be thrown. When Buffett was asked last year in Europe if he was now buying stocks due to the sell off occurring at that time his reply was, �No, I�ll start buying when they sell for less than their worth.� Stocks are cheaper, but we ain�t there yet.
Disclosure: I own Allied Domecq and BRK and would be short Jim Cramer, but no such security exists � yet. Good luck BRK longs.
How to you believe? Buffet and Munger, financial genius' with excellent insight intelligence and track record. They say the market is still overvalued. Or loser stock analysts, like Mary Meeker and Bludgett with worthless degrees in Art History. If you don't decide and market will be deciding this year for you.
Ahmen . . .I've been saying for years that when the DOW gets back to 6800 (fair PE value) I will buy. We really need a good blowout - I think this Chinese Water Torture of 100 points a week is worse than a good 800 point drop in one day.
Stocks are worth exactly what people are willing to pay for them - no more and no less. Thus, a value judgement like "overvalued" or "undervalued" is meaningless. For what it's worth, the current bull run started in the early 1980's with the Dow average at 880. Could we retrace the last 20 years? Sure.
Will we? I don't think so, but many would certainly beg to differ.