Friday, July 24, 2009

Warren Buffett Says Now is the Time to Buy Stocks: He's Half Wrong

'Billionaire investor Warren Buffett says now is a good time to invest in stocks, despite the Dow Jones Industrial Average topping 9,000 for the first time since the beginning of the year.

Speaking during a live interview Friday morning on the CNBC television network, Buffett said he would much rather own stocks with the Dow at 9,000 than have a long position in U.S. Treasuries right now.

He said business is still flat, but that investors shouldn't wait until businesses turn around before investing in stocks again.

"If you wait until you see the robin, spring will already be over," said Buffett, chairman of Berkshire Hathaway Inc.

He did issue a warning about inflation, saying that the dollar would buy less 10 years from now than it does today. But he said that doesn't mean the actions being taken today to fix the economy are wrong just because it may cause inflation.

Buffett was on the business cable network to promote his partnership in a new series of Web-based educational cartoons known as "The Secret Millionaires Club." He said the idea behind the cartoons is to help entertain children and young people while delivering an educational message such as warning them about the dangers of credit card debt."

To read the complete article from the Nashville Business Journal, go here.

It goes to say I'm a huge Warren Buffett fan. I'm learned a great deal from him over the years. I'm also a long term Berkshire Hathaway shareholder.

But Warren is half wrong here.

The time to buy stocks was six months ago, when the market had cratered. Now is the time to prune positions, add to some for sure but get rid of all the easy money that rode the market tide back up to normal and average gains. Most stocks are overvalued now, not cheap.

Personal finance experts agree. You should always be buying stocks, regardless of market timing conditions. For Warren to suggest otherwise is a bit inaccurate. Dollar cost averaging is a great example of how to make money in the market regardless of stock price direction.

I see no great valuations in the stock market these days. Some cherry picking, yes. But most of the earnings gains lately have been made on budget cuts not income growth. It's easy to report good numbers based on slashing employment, cutting commodity costs, and reducing R&D budgets.

It's harder to do when you actually have to sell new things to new customers. I don't see any of that lately in the companies I study.

Warren is a great investor. He's an awful market timer.

Robert J. Abalos, Esq.