Warren Buffett talks to Becky Quick from CNBC…always interesting. But two things strike me about this conversation. Buffett’s outlook on investments and Quick’s reaction. Buffett, true to form, is always talking about the long term. His entry points on most of his investments occur when nobody agrees with his actions. Back in 2008 when he told investors to “Buy American stocks, I am”, he was clearly swimming against the grain. In fact I remember him being interviewed on CNBC at the time and the interviewer wondered if in fact that was a good time to be investing with all of the financial troubles at that time. His answer then was, “I don’t know where prices will be in the next weeks or months or even next year but 5 or 10- years from now these companies will be worth considerably more than they are now”. And a few months down the road, in early 2009, he was being vilified for buying in Sept/Oct of 2008 and prices had fallen from that point. What CNBC fails to understand, or does an incredibly bad job of portraying, is that Buffett doesn’t care that the prices of his shares went down in the following months. What he cares about is that they go up in the long term. As a business news show, CNBC doesn’t care about the long term, in fact they can’t care about the long term. They need you to tune in day to day and because of that, they talk about things in very short time frames. While CNBC loves to have Buffett on, their investment philosophy couldn’t be more opposite. As you watch this interview, notice Quick’s reaction to Buffett investing in European companies at the end of last year.
Greece’s debt (death) Spiral – The new debt restructuring plan for Greece aims to bring their debt to GDP level from 160% down to 120% by 2020. So in eight years they hope to bring their debt down to a still exorbitant level. The bond market is currently betting against it. The cure is a revamped economy but with the new plan, higher taxes are a major source of the cure and higher taxes seldom leads to economic growth. While national pride and obligation will prevent some from leaving, the prospect of 10+ years of stagnant growth and high taxes will undoubtedly cause some businesses and people of means to look offshore. Maybe the biggest challenge is to convince the general population that they are not only a major source of the problem but also a major part of the solution. I.E. they need to accept lower living standards. I wish them well in their recovery and I wish us the wisdom to learn from their situation.
Hubble Bubble Index Trouble – the crowd has spoken and passive investing is their choice. Passive investing, or indexing, is the investment approach that says you can’t beat the market so just buy the market or all of the stocks in a particular index. There’s over $1 Trillion dollars in these types of funds. According to this article, it has caused the value of the stocks in indexes (here they are talking mostly about the S&P 500), to be valued by as much as 40% more than stocks not within the index. So the investors who chose to index to avoid the next bubble have themselves created it. You might want to look at your portfolio, or the funds in your portfolio, to see how closely it resembles one of these overvalued indexes.
OK so Greece’s situation is bad and about two minutes ago I thought we could learn something from their situation. According to Meridith Whitney, it may be too late. Many municipalities in the US are in dire situations and it could be awhile before they cure their ills. This link is to a fortune article but if you don’t have time to read the whole thing, skip to the video at the bottom…..very interesting!