Fisher Investments Editorial Staff
Others

Gotta Love a Cheap Buffet

By, 10/20/2008

Story Highlights:

  • After the last few weeks' tumult, things continue to feel grim.
  • Capitalism's been through the ringer time and again, yet it's still here to tell the tale. Stock markets are a direct reflection of that profitable history.
  • Stocks tend to recover long before the economy and headlines change. When the market recovery happens, it'll likely be big and fast and leave a lot of skittish folks behind.

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Financial panic has gripped the nation, banks don't trust each other, commercial paper markets have seized, and no one's sure what economic fallout we'll uncover next. Worse, the government has done something it never has—decided to mobilize hundreds of billions of tax payer dollars to take stakes in the private sector. Heck, even Hugo Chavez is calling the US a "great country." Scary right? Fear not: Hugo Chavez is cheeky, but a capitalist he's not.

The most important thing for stock investors right now: No matter how you slice it, stocks are cheap. Historically cheap. Some (though we imagine they're a pretty tiny minority) dodged this bear market. Many others didn't and are smarting something awful these days—it's been painful. Folks are worried and uncertain. But if there's anything worth saying with true conviction right now, we think it's this: If you're out of stocks, get back in now, and if you've been hanging tough so far, keep holding on.

Take Warren Buffett's excellent op-ed piece in the New York Times this morning.

Buy American. I am.
By Warren Buffett, New York Times

In his article, Mr. Buffett admits he "can't predict the short-term movements of the stock market," but doesn't really care to anyway. The moment always feels chaotic, but the longer run reveals the archetypal pattern. Buffett goes on to say:

In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

That's a powerful reminder of something Hugo Chavez may never understand—capitalism's been through the ringer time and again. It's been stretched, soiled, torn, tormented, fired from a cannon. And yet here it is, still standing to tell the tale. Actually, capitalism is supposed to work that way. It can be brutal, but it trims away the excessive and the wrong with great alacrity and efficiency so the world can move ahead.

We've been through worse, and no doubt we'll go through it again. But while physical resources are limited, human ingenuity is not—and if you believe that, you can't help but agree the long-term economic trend is up.

But why stay in (or get in) now when things are so uncertain, why not try to limit some more downside? Saying "no one knows when this thing ends" is the reason folks use to sit on the sidelines, but in fact, that's exactly the reason to be invested now. It's a classic investing mistake to call a bear market after it's happened and get out when the majority of the damage is done. Disciplined investors recognize they failed to call the down draft and stay in now because it would be doubly damaging to miss the ensuing upside.

Just as importantly, stocks tend to recover long before the economy and headlines do: "If you wait for the robins, spring will be over." Added to that, the bounce off a bear market bottom is too big to miss out on. But if you're there when it happens, it'll erase many painful losses and eventually overwhelm them—quicker than you think.

We'll even go a step beyond Mr. Buffett. Why just American? Why not the world? The same argument for America's potential holds for the Eurozone countries and emerging markets around the globe. Capitalism varies in form and function country by country, and nowhere is it perfect, but never before have more nations adopted the free market philosophy as their economic mantra—missing that fact could mean missing the best performers down the road.

With most folks kicking over lawn chairs and cursing the rain, we're holding our spot in the sun while it's on sale—no one's more regretful than a fair weather fan buying back in late.

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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