Dear Friend,
Last Thursday night – in a town hall event televised by CNBC – Warren Buffett and Bill Gates went to Columbia University to discuss the extraordinary market events of the past year…and how they each felt about America’s future.
And while Bill Gates had some eloquent and important things to say during the program…Warren Buffett absolutely stole the show.
In the span of just 90 minutes, Buffett delivered three very powerful messages that are worthy of our attention.
If he wanted to, Buffett could likely charge five- or six-figures – and pack the house – to reveal these kinds of gems. Fortunately for you and I, Buffett has never gone that route, instead opting to share his wisdom with anyone willing to listen.
I’d like to examine with you these three powerful, wealth-building ideas that Warren Buffett “revealed” Thursday night…and show you how you can put these proven concepts to work for you right away.
So let’s get started…
Buffett “Secret” Number One:
How to Turn the Tables on a Terrible Market
Over the last year, investors have spent many sleepless nights worrying about the state of the economy and the short-term direction of the stock market.
But the truth of the matter is…it doesn’t have to be that way. I’ll let Buffett explain why…with my emphasis added:
“It’s a terrible mistake to look at what’s going on in the economy today and then decide whether to buy or sell stocks based on it. You should decide whether to buy or sell stocks based on how much you’re getting for your money, the long-term value you’re getting for your money at any given time. And next week doesn’t make any difference because next week, next week is going to be a week further away.”
Now I realize it’s easy to get caught up in the short-term moves of the market.
After all – no one likes to invest their hard-earned money and then see his investment begin to drop. But remember, it’s all about having the proper perspective…and I’ll let Warren Buffett provide that for you (again, emphasis added is mine):
“What do you think the best year for the market has been since 1942? The answer is 1954. In 1954, the Dow (gained 43.96%)… dividends were up 50%. Now if you look at 1954, we were in a recession a good bit of that time. The recession started in July of ‘53. Unemployment peaked in September of ‘54. So until November of ‘54 you hadn’t seen an uptick in the employment figure. And the unemployment figure more than doubled during that period. It was the best year there was for the market.”
“The important thing is to have the right long-term outlook, evaluate the businesses you are buying. And then a terrible market or a terrible economy is your friend. I don’t care, in making a purchase of the Burlington Northern, I don’t care whether next week, or next month or even next year there is a big revival in car loadings or any of that sort of thing.”
There you have it – Warren Buffett’s 55-year-old “secret” for turning the tables on a terrible economy: If you have the right long-term outlook, a terrible market is your friend!
And take a look back at some of the things going on back in 1954 – the headlines were dominated by talk of high unemployment and recession. Sound familiar? Yet it proved to be the single best calendar year for the market since 1942.
Buffett “Secret” Number Two:
This Country Doesn’t Avoid Problems…
It Just Solves Them
So what should we make of the current state of the American economic system?
After all, over the last 18 months or so we’ve seen many of the institutions we once thought to be “solid” collapse around us. And going forward, we’re looking at the possibility of heightened regulation and restrictions on the financial markets.
Here’s what Buffett had to say about that:
“If you look back on the 19th Century, we had seven great bank panics. If you look back at the 20th Century, we had the Great Depression and world wars and flu epidemics. This country doesn’t avoid problems. It just solves them. And in the next 100 years, our machine will sputter again, you know. Maybe 15 years will be so-so years, but there will be 85 great years. And during the 20th Century the Dow went from 66 to 11,400, so this is fertile soil that you’re working in and there’s no reasons to cut corners.”
He went on to put it another way – in classic Buffett style:
“If you had a wonderful farm and you knew the next 50 years there would be five droughts but there would be 45 good years, I mean, you would not become paralyzed thinking about the five drought years. You would recognize that you’ve got a system that works very well over time, and that’s our American economic system.”
The next time you hear a television talking head shouting about how the American economic system is hopelessly broken, I want you to think of Buffett’s words.
More importantly, though, I want you to think of Buffett’s actions – including his most recent “Bet on America” to the tune of $26 billion.
No doubt about it – the U.S. economy will have some rough times every now and then. But if you had made a long-term bet against it – at any time in our history – you’d have lost your shirt!
Buffett “Secret” Number Three: Don’t Worry about Timing –
Be Ready to Seize the Next Great Opportunity
Think back to what was happening last fall – the markets were in a free-fall…financial institutions were crumbling…and it seemed like there was no end in sight to the bad news.
What were you doing then? Were you still loading up on undervalued stocks? Or were you sitting nervously on the sidelines?
Here’s what Warren Buffett was doing:
“Last fall was really quite exciting for me. I don’t wish it on anybody, but there were things being offered. There are opportunities for us to do things that didn’t exist a year or two earlier. So I really don’t — I don’t want to be in a position where I am leveraged or something of the sort that does keep me up at night. I did not worry about the ultimate survival of our economic system. We were messed up. Wasn’t any question about that. But the plants haven’t gone away. The cornfields haven’t gone away. The talent of the American people hasn’t gone away. The innovativeness of the next Bill Gates hasn’t gone away. This country was going to do fine. I knew that. We just had to get things straightened out. And we’re well on the way to having that happen.”
“A period like this gives me a chance to do things. It’s silly to wait. I wrote an article. If you wait until you see the robin, spring will be over.”
Here’s the important point:
Instead of trying to time the market or time a trend, Buffett spends his times analyzing the quality of a business and what its value really is. Buffett looks for companies with long-term competitive advantages in stable industries.
Everyone knows Buffett’s basic criteria for buying …
1. It must be a business he understands.
2. Have favorable long-term economics
3. Be run by able and trustworthy managers.
4. Have a sensible price tag.
Most investors will spend their entire lives trying to figure out how to time whatever big trend is in the news right now and never give any thought to the real quality of the businesses they buy.
But when – as Buffett says, you get “a chance to do things”…it really is foolish to wait. There are several opportunities – severely undervalued companies with great business models and sound management – that are out there for you right now.
Are you ready to grab them? If so…I’d like to help.
How You Can Put Warren Buffett’s
Powerful Secrets to Work…for FREE!
Each month – in my Hidden Values Alert advisory letter – I provide two thoroughly researched “extreme value” recommendations that are based on the principles used by Warren Buffett himself.
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Sincerely,
Charles Mizrahi, Editor
Hidden Values Alert
P.S. The only companies who make it into my Hidden Values Alert portfolio are great businesses trading at deep discounts. This helps us maintain the proper long-term perspective that “turns the tables” on terrible markets and makes them our friend. I’d like you to try my wealth-building service RISK-FREE with this special 30-day FREE preview. Click here to begin your journey right now!
This post was originally sent on 11/15/09 to the Hidden Values Alert email list