Investments

Warren Buffett

Times are hard and the markets are down again. Investors are gripped by fear of what 2009 will bring after a disastrous 2008 and most have bearish outlooks for major economies and markets alike. US job figures as of yesterday, which revealed that 693,000 people lost their jobs in the run up to Christmas, are making economists now expect Friday’s payroll figures to show that more than 700,000 people lost their jobs last month.

Obama has recently described the US economy as “very sick” and predicts the situation to worsen in 2009 and most agree with him.

One person, however, seems to be having the time of his life (at least since the 1970s when he was very gung-ho as well in the midst of a major economic global crisis) : He is not surprisingly Warren Buffett, Billionaire investor and chairman & CEO of  Berkshire Hathaway.

The shares of Berkshire Hathaway may have dropped 32 percent in 2008, making it the worst performance in more than three decades, but Mr Buffett has remained positive and very aggressive which one of his famous quotes also underlines :

“I will tell you how to become rich. … Be fearful when others are greedy. Be greedy when others are fearful.”

Yes stocks are cheap right now after their dismal performance in 2008 year and hence Buffett would argue that they offer a great buying opportunity, but others remain sceptical and see further losses and drops in stock prices.

So is Warren Buffett right to be in a buoyant buying mood ?

This posts looks into what others have to say about this.

Jim Mueller of Fool.comis impressed with Buffett’s track record and his ability to spot a good buying opportunity on the back of dismal market conditions:

Of course, past performance is no guarantee of future returns, but take another look at that quote above. Then read this one, also from Buffett, from his 1990 letter to shareholders:

“The most common cause of low prices is pessimism — some times pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It’s optimism that is the enemy of the rational buyer.”

Were you one of those who checked the table above when I told you the date of that quote? The man knows what he’s talking about.

You demand proof? In October 1990, just as bearish sentiment was peaking at 48%, Buffett revealed that he had upped his position in Wells Fargo to just shy of 10% of the company. In the following 12 months, while the market returned a “mere” 29%, that one investment returned 123%. In the five years following that bearish peak, it returned 290% or 31.3% average per year! And that doesn’t even include the dividends. He still owns about 7% of the company.

Mueller  continues to emphasize that with today’s major bearish market and outlook, Buffett has yet again proven to be good to his word and started the year by buying major positions in integrated oil giant ConocoPhillips  and also upped his position in health-benefits manager WellPoint and he concludes on the same note:

Will those work out for him? Given his record, probably. However, the question you’ve got to ask yourself today isn’t “What is Warren doing?”

Rather, it’s “Am I going to be greedy?”

I hope you’ll answer “yes” to that question.

CNBC’s Alex Crippen has a story  on Morningstar StockInvestor and its editor Paul Larson who recently named Mr Buffett as their CEO of the year despite some rather controversial and bad timing decisions by Mr Buffett during the latter half of 2008 :

Morningstar StockInvestor editor Paul Larson recounts Buffett’s “perceived mistakes” of recent months, including Berkshire’s big put option contracts on stocks, investments in General Electric [GE  16.11    -0.75  (-4.45%)   ] and Goldman Sachs [GS  84.50    -4.21  (-4.75%)   ], and Buffett’s October call to buy U.S. stocks.  “With the market taking a sharp turn for the worse in late October and again in November, clearly the timing was not the best on these particular bullish actions.”

But, writes Larson, “We do not view these as any reason to lose confidence in Buffett’s abilities, either as an investor or corporate manager.”

He argues that worries about the option contracts are overblown and points out that even though the GE and Goldman warrants are underwater right now, Berkshire gets a 10 percent annual return on its $8 billion worth of preferred shares in the two companies, no matter what their common stocks do.

The article goes on to stress how impressed Larson is by Buffett’s gung-ho attitude and not least ability to steer Berkshire away from risky derivatives and excessive leverage :

“By practicing prudence and patience earlier in the decade, Berkshire was in a position to put large amounts of capital to work in 2008. In other words, rather than blowing its ammunition hunting squirrels a few years ago, Berkshire has been able to shoot the proverbial elephants now walking by.”

Morningstar’s bottom line:

“Beyond creating a company that treats common shareholders with the utmost fairness and respect, one needs only to look at the long-term value created at Berkshire Hathaway to see why Buffett deserves the award. Since taking the helm of the sleepy textile business 44 years ago and turning it into arguably the strongest conglomerate on the planet, Buffett and his managers have grown the book value per A share from $19 to just over $77,500, as of Sept. 30. This translates to a 20.7% annualized increase in book value since 1965, versus a mere 9.6% annualized return in the S&P 500 (including dividends) over the same time period.”

Seattle Times’ Hugh Son quotes  a senior investor for saying he does not believe that despite some recentquestionable investment decisions by Berkshire Hathaway that Mr Buffett has far from lost his magic touch:

“Buffett has the opportunity to do what he does best, which is acquire new companies at prices that have him licking his lips,” said Frank Betz, a partner at Carret Zane Capital Management, which holds Berkshire shares. “I don’t think Mr. Buffett is bummed out at all.”

This seems indeed to be the general sentiment of analysts and observers and despite his 78 years of age and a negative performance during 2008, one really should not write Buffett of as one of the most important and skilled investors of our time,  in fact it may be a very good idea to by into his Berkshire Hathaway now, that is if you can afford such a thing.

Finally, if you are interested to follow investment guru Warren Buffett here is a great site to bookmark - it also features all Buffett’s famous quotes in its headline so check it out - Warren Buffett Post

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This posts provides an overview of what some of the leading experts and sources list and recommend as Hot Stocks given their recent performance and value so have a read through !

Forbes has a good overview of movers and shakers from The Far East:

The China Enterprise Index of top locally listed mainland Chinese firms was up 1.87 percent to 7,362.09.

Here are some of the stocks on the move:

Financial stocks remained strong after China said it planned to stabilise its stock market and ensure liquidity in the banking system.

China’s biggest lender, ICBC, and smaller rival China Construction Bank gained about 1 percent on hopes China will further cut the reserve requirement on deposits to spur lending.

The nation’s No. 1 insurer, China Life Insurance, rose 3.7 percent, while smaller rivals Ping An Insurance soared 6 percent and PICC P&C surged 3.2 percent.

 * Properties remained in focus with investors hunting for bargains after their recent weakness amid the gloomy outlook for the real estate sector.

Developer Sun Hung Kai Properties rose as much as 1.5 percent on Friday morning despite revising downward its apartment sales target by 20 percent to HK$16 billion for this fiscal year ending in June 2009 from HK$20 billion as the global financial crisis hits Hong Kong’s property market, but it expects a market pick-up in early 2009.

And the article ends up with a round up some other Asian giants and how they are performing :

* Chinese telecom shares rose on renewed speculation that 3G licences will be issued by the end of the year. The nation’s biggest cellular phone network China Mobile rose 2.9 percent, while smaller rival China Unicom gained 2 percent.

 * Hutchison Whampoa rose 2.4 percent after Shenzhen Yantian Port Group said on Thursday that Hutchison, the world’s biggest container terminal operator, had agreed to invest in a container terminal in the city’s Yantian East area.

 * Shanghai Electric Group’s H-shares surged 3.4 percent, marking the trading debut of domestic A shares of the heavy equipment maker in Shanghai on Friday. The company said it has secured more than 80 billion yuan worth of orders in 2008, with outstanding orders in power equipment, heavy machinery and transportation equipment divisions valued at over 180 billion yuan as of Sept 30.

Jim Jubak of MSN Money is hot on Commodity Stocks and explains why:

We’re building the foundation for the next boom in commodity prices — and commodity stocks.

I can’t give you any guarantee that commodity prices won’t tumble further in the short term. In fact, I think that’s very likely to happen as the U.S. economy slips into recession (possibly along with the economies of Japan and the European Union).

But right now commodity stocks are factoring in huge declines in demand and tumbling commodity prices over the long term that just aren’t going to occur. A patient investor who can put up with the pain of the next six, nine or 12 months can now buy a very reasonably priced option on the shares of the strongest commodity producers for the next leg up in commodity prices. I peg the beginning of the next boom at late 2009 or early 2010.

Mr Jubak goes on to explain why even the current financial crisis could impact the commodity stocks postively :

The economic laws of supply and demand don’t care if we’re reluctant to revisit a stock market sector that has delivered so much pain. And as hard as it may be to believe right now, it looks like the current meltdown in global financial markets isn’t going to have much effect on the trends that made commodity stocks big winners until mid-2008.

Growing demand from the rising economies (and the increasingly wealthy consumers) of China, India, Brazil and the Middle East is still going to drive up the long-term price of everything from oil to zinc. In fact, the current global financial crisis could make the commodity boom that much stronger when it does return.

Marketwatch.com has some predictions for Monday trade which are worth noting:

Among the companies whose shares are expected to see active trade in Monday’s session are National Semiconductor Corp., H&R Block Inc., and Worthington Industries Inc.

Click here for their full recommendations and insights.

Finally, Richard Gibbons of The Motley Fool talks about stocks you should avoid at present:

The amazing thing about this market is that there are so many cheap stocks. The problem with this market is that there are so many companies that could really blow up on investors.

Your investing success in the next year will be largely determined by your ability to sniff out and avoid losers. With that in mind, here are some suggestions for stocks you should avoid.

Speculative companies
Right now, you should avoid money-losing businesses, companies that need high growth to justify their high earnings multiples, start-up companies that are dependent on the growth of new markets, and other speculative stocks.

Right now, you can find solid, blue-chip stocks that are undervalued by unprecedented amounts. If you can buy a stock that should be trading at double or triple the price, why would you want to risk your money on a stock with less probable gains? In such an environment, speculative bets just don’t make sense.

For instance, right now General Motors (NYSE: GM) is trading at 66-year lows — and the stock still isn’t cheap. The company is projected to lose money as far as the eye can see, and it’s begging for government assistance. Why would you even consider buying GM when you can get Microsoft (Nasdaq: MSFT) — arguably the strongest company in the world with $18 billion in yearly income — at less than nine times its forward earnings multiple? GM simply doesn’t make sense.

When even established, well-capitalized companies are seeing strong headwinds, stay away from the companies that aren’t well-positioned.

To read this rest of his article on things to consider before you buy shares click here - and you should also consider getting their Motley Fool Inside Value report - worth a read for sure !

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If there is anybody out there who still believe what the so-called experts predict here are some positive news and predictions for 2009 :

Dec. 3 (Bloomberg) — Global stocks will withstand a “full-blown” recession and surge in 2009 as cheap valuations and efforts by governments to restore confidence in the financial system lure investors back to equities, UBS AG said.

The Standard & Poor’s 500 Index, which tumbled 42 percent to 848.81 this year, may rally 53 percent to 1,300 by the end of 2009, David Bianco wrote in a note dated yesterday. The New York-based strategist, who a year ago predicted a 2008 advance of 16 percent for the S&P 500, is now forecasting a gain that would exceed the index’s best annual performance on record.

The U.K.’s FTSE 100 Index may increase 41 percent from yesterday’s close to 5,800 in 2009, while the FTSEurofirst 300 Index may climb 25 percent from current levels, Zurich-based UBS said in separate notes.

“The consensus outlook for 2009 is a full year of gloom,” Bianco, 33, wrote in his 2009 market outlook. “We believe 2009 will bring signs of a dawn in confidence with the first faint light appearing earlier than most investors expect.”

Read the full story from Bloomberg here.

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