Warren Buffett Echoes His 1974 Advice: Buy Stocks

Ever since Warren Buffett penned his New York Times op-ed piece Buy American. I Am. last month, investors everywhere from blogs to Barron’s have been questioning the soundness of his advice to purchase stocks. Mr. Buffett stated, ”A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.” He also warned us that trying to time the markets was dangerous, since it means we might miss a market recovery:

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

Remarkably, Mr. Buffett’s exhortation to buy stocks today echoes the prescient advice he gave back in 1974 in a Forbes profile of him entitled “Look At All Those Beautiful, Scantily Clad Girls Out There!”

Economic uncertainty was arguably worse in 1973-’74 than today. Our rivers and lakes were polluted; people were worried about natural-resource scarcity; the U.S. was bogged down in Vietnam; Watergate broke and Nixon resigned; and the Organization of Arab Petroleum Exporting Countries (OPEC) organized an oil embargo against the U.S. for supporting Israel during the Yom Kippur war. From January 1973 to December 1974, the S&P 500 Index declined from peak to trough a whopping 48%. All of which led people to conclude that the so-called American Century had come to a premature and undignified end.

It was in this 1974 environment that Mr. Buffett told Forbes,”Now is the time to invest and get rich.” He stated:

You can’t invest in the anticipation of calamity; gold coins and art collections can’t protect you against Doomsday. If the world really is burning up, “you might as well be like Nero and say, ‘It’s only burning on the south side."

“Look, I can’t construct a disaster-proof portfolio. But if you’re only worried about corporate profits, panic or depression, these things don’t bother me at these prices.”

As it turned out, 1975 was one of the best years ever for the U.S. stock market, and seven years later began the longest bull market the world has ever seen.

Today, we don’t know whether the coming months will be 1974, 1975, or something altogether different. But with the S&P 500 Index down 44% from its all-time high of 1,565 on Oct. 9, 2007, and with Mr. Buffett telling us once again that we should consider purchasing stocks, it might behoove us to listen. After all, the Sage of Omaha also warned us back in 1999 about tech stocks and the so-called New Economy.

Here’s what Mr. Buffett is telling us right now:

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

Source