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Why Warren Buffett’s 2008 message to American investors was timed perfectly: Morning Brief

Sam Ro
Managing Editor

Monday, March 9, 2020

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It’s a mistake for investors to obsess over the market’s next move

On October 16, 2008 during the darkest hours of the global financial crisis, billionaire investor Warren Buffett published an op-ed for the New York Times titled, “Buy American. I Am.

This was a month after the housing market crash and the credit crunch resulted in the Lehman Brothers bankruptcy. The S&P 500 (^GSPC) had plummeted 23% since that event.

Now, this wasn’t a letter to Berkshire Hathaway (BRK-A, BRK-B) shareholders and it wasn’t an appearance before a business channel’s business audience. It was a message to America, reminding Americans that the country has had a long history of what seemed to be insurmountable crises but yet managed to come back. Economic activity has always returned and the stock market has always rebounded.

However, it’s important to remember that the stock market was far from bottoming. In fact, the S&P 500 tumbled for another five months, losing another 26% before the next bull market finally started in early March 2009.

The fact that stocks would tumble in the short-run is what made the timing of Buffett’s op-ed so perfect.

Think about it.

If he had published in March 2009, then his message about the U.S. economy and markets would’ve been overshadowed by his apparent ability to time the market. On Wall St., he’d be remembered as a great trader. On Main St., average Joes might actually find themselves discouraged as it once again appeared to be the case that elites have an advantage when playing the stock market.

Ultimately, his message was that the long-term outlook for the U.S. economy was still intact and the crisis made stocks cheaper.

Sure, stocks ended up getting a whole lot cheaper. But anyone who bought the S&P 500 (SPY) when he published that op-ed would be up 227% through last Friday.

With regard to what could happen next in the markets, Oaktree Capital’s Howard Marks discussed how investors should think of selloffs in a recent memo titled “Nobody Knows II.

“Will stocks decline in the coming days, weeks and months? This is the wrong question to ask... primarily because it is entirely unanswerable,” he said. “Instead, intelligent investing has to be based — as always — on the relationship between price and value.”

Warren Buffett in his office in Omaha, Nebraska (Photo by: David A. Grogan/CNBC/NBCU Photo Bank/NBCUniversal via Getty Images)

Buffett would concur.

"Anything can happen to stock prices tomorrow. Occasionally, there will be major drops in the market, perhaps of 50% magnitude or even greater,” Buffett said last month. However, he also reiterated his long-term bullishness on stocks and said, “Most people are savers, they should want the market to go down. They should want to buy at a lower price.”

And so, such is the nature of financial markets, which in the short-term swings amid uncertainty, while also rewarding long-term investors who are able to stomach the volatility. That is, assuming the long-term outlook for things remains intact.

“So, especially after we’ve learned more about the coronavirus and developed a vaccine, it seems to me that it is unlikely to fundamentally and permanently change life as we know it, make the world of the future unrecognizable, and decimate business or make valuing it impossible,” Marks said.

By Sam Ro, managing editor. Follow him at @SamRo

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