Sunday, May 06, 2007

Warren Buffett on the markets

There is an slightly informative article in the Chicago Tribune by James Miller entitled "Buffett predicts more market turbulence" which shares some of the investment wisdom of Warren Buffett from the latest annual shareholder meeting of Berkshire Hathaway. The title was a bit misleading, but that is the nature of the yellow journalism that afflicts most media outlets these days. Admitedly, it is a daunting task to summarize five hours of Warren Bufett into a short and "catchy" title, but I despire the yellow journalism nonetheless. Anyway, the first three paragraphs of the article provide a much view than the title:

Investor Warren Buffett expects periodic turbulence in the stock market in the future, and warned that such normal disruptions are likely to be amplified by the hair-trigger buy-and-sell proclivities of the "electronic herd" of investment managers around the world.

Still, the fabled investor told 27,000 stockholders of his Berkshire Hathaway Inc. investment company this morning that Berkshire plowed $5 billion into the stock market in the first quarter of 2007.

Buffett said that, if he had to choose, he and investing partner Charlie Munger would rather own stocks over the next two decades, rather than buy twenty-year bonds.

That last sentence provides much more valuable investment "advice" than the title or lead sentence. Sure, expect volatility, but having a charted course should be your priority. Nowhere in he article does it suggest that investors should think that they can accurately predict volatility and should try to profit from it. If you think you can accurately forecast volatility, Warren offers this cautionary advice:

Most funds are ready to sell if certain triggers are tripped, he said, and no one will know what that trigger is until it happens, "like the shooting of the Archduke (Ferdinand) started World War I."

-- Jack Krupansky

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