This is our short term rating system that serves as a timeliness indicator for stocks over the next 1 to 3 months. How good is it? See rankings and related performance below.
|Zacks Rank||Definition||Annualized Return|
Zacks Rank Education - Learn more about the Zacks Rank
Zacks Rank Home - All Zacks Rank resources in one place
Zacks Premium - The only way to get access to the Zacks Rank
Warren Buffett Was RightAugust 07, 2009 | Comments : 1 Recommended this article: (0)
This page is temporarily not available. Please check later as it should be available shortly. If you have any questions, please email customer support at email@example.com or call 800-767-3771 ext. 9339.
Did you follow Warren Buffett's advice last year to buy American stocks? In that now famous October 17, 2008 Op-Ed piece in the New York Times, Buffet shared his simple rule for buying stocks: "Be fearful when others are greedy, and be greedy when others are fearful." Certainly at that time fear had gripped the markets and investors were fleeing equities into cash.
Well if you did buy at that time, then you are one of the few, the proud, and the bold value investors who made a prudent call that is now paying off handsomely. And if you didn’t buy then lets review the lessons that Warren was trying to share and how it will benefit you going forward.
1. The Markets Rebound Long Before the Economy
Buffett believed that equities would far outperform other asset classes, especially cash, over the next 5, 10 or 20 years as the stock market rises in anticipation of an economic recovery, even if we weren't in one yet.
A perfect example is the Dow's behavior during the Great Depression. Buffett wrote that it took several years for the Dow to hit its low of 41 on Jul 8, 1932. But you wouldn't have known that that was "the bottom" based on economic conditions. The economy continued to worsen until March 1933, when Franklin Roosevelt took office.
Meanwhile, from the market lows in July 1932 to March 1933, the Dow rebounded 30%.
We've seen a similar rebound in the last 5 months but no one knows how long the rally will last or if it's the start of a new bull market. Still, while your cash is getting virtually no interest in this zero-rate interest environment, equities are paying a dividend yield and have the possibility of more upside. In this kind of environment, cash is not king.
2. Long-Term Outlook For Equities Is Good
The stock markets have been around much longer than any of us. During that time, the world suffered through world wars, influenza outbreaks, terrorist attacks, recessions and one depression but still, businesses created new products and made profit. They will continue to do so in the future.
Consider Apple and the iPhone. Even in the midst of this recession, millions of people bought the iPhone around the world. Investors who understood that Apple was still selling its products at a fast clip were rewarded with a stock that jumped over 90% from the beginning of the year.
Apple won't be the last company to cash in on its powerful brand and host of good products. The key for investors is to find other companies that will be next to do the same.
3. Prepare for Inflation
Buffett wrote that greater inflation was a possibility as the government printing presses work overtime to alleviate the recession and liquidity enters the economic system. Cash is where you will NOT want to be. The value of your cash will actually decline under those conditions.
There are now exchange-traded funds (ETFs) and other instruments available to investors to prepare for inflation including owning TIPs, Treasury-Inflation Protected Securities, and the precious metals through the gold or silver ETFs or precious metal mining stocks.
4. Finding Great Stocks
The great thing about being an investor is that there are always hidden gems to be uncovered in any kind of market.
Despite the massive rally we've seen on the markets in the past few months, you can still hunt for undervalued stocks that will see a big upside when investors figure out that the fundamentals are great and the stock is cheap.
For example, in May, well after the rally began, the Value Trader portfolio, which buys a basket of stocks with a holding period of 3 months, bought shares of Western Digital and sold in late July for a 23.44% profit.
We try and find these kind of stocks every day.
5. It's Not Too Late to Invest
By March, it seemed that Buffett's advice to buy equities was very, very wrong. But that was his point. You can't time it. He said he had no idea what stocks would do in the short term. But it's not too late.
The Value Trader portfolio kept following Buffett's advice and bought equities. We hung in there and it paid off. Big.
Value Trader bought Centene Corp. in December 2008 and sold in January 2009 for a 17.87% winner. As you recall, it again got rough in late January and February but we stayed invested.
Value Trader jumped in again in late February buying Telesp when things looked grim, and sold in late March for a 14.40% gain.
If you're an investor who appreciates that now is still a good time to "Buy American" then I invite you to take a look at the current stocks in our Zacks Value Trader portfolio. Since inception, even while the market was sinking -33.8%, such companies registered a gain of +12.3%. The service became so popular it had to be closed to new members, but re-opened briefly this week.
It closes again Saturday night, so if you’re interested in these value stocks, click now to learn more.
All the best,
Tracey Ryniec Editor,
Zacks Value Trader
Please login to Zacks.com or register to post a comment.