Yesterday the New York Times published a letter from the renowned investor Warren E. Buffet, in which he called upon people to buy buy buy that American stock. In these troublesome times that might seem like particular bad advise, were it not the words from the man that supposedly turns lead to gold.
In the New York Times article Buffett states that the reason for now being a good time to buy is based on a simple rule:
“Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors.”
Buffett obviously claims he cannot predict the stock movement in the near future. Any claims to the contrary would damage anyone’s credibility. As such he might as well have put up a big disclaimer denying responsibility after telling people buying now is a good bet since stock prices are low on the full front.
Buffett’s advise seems to make sense of face-value. When markets are uncertain it can be very cheap to buy stock; when things shoot up selling that stock will be very profitable. However, considering that even banks are falling victim in such turbulent times, which pale the erratic mood swings of the late Boris Yeltsin, such advise would be a rather risky gamble.
There is also another thing to consider. Buffett has the almost prophetical reputation on matters of investment, which means his word weights heavy on the minds of any broker, who is seeking for direction. It is not farfetched to think that at least a considerable group of people would entertain these ideas would be fueled enough to grow the bollocks and take the chance.
Let’s entertain this thought some more. If this statement has a cascading effect of people buying stock it means demand goes up and, likewise, stock price goes up as well. In times where the stock market has lost any sense of rationality any news or seemingly benign advise is capable to send the indices fly up as if strapped to a three-stage rocket.
And there lies a seed of doubt. The words of Buffett might be in themselves the seed of a self-fulfilling prophecy. Buffett expects stock to rise, people join the bandwagon and stocks rise.
When this movement is at peak momentum Buffet would bail out (according to his own rule) before the bubble bursts and would make a sweet profit. Anyone who would catch on too late -or worse- bet on a terminal patient sees his money evaporate faster than he can blink or swallow.
I cannot read the mind of this man, so I would not know of his intent. I do know that as it is with anyone whose voice carries so much weight has the ability to (inadvertently or deliberately) manipulate the system with mere words. I would expect from a man of his stature (of which he is undoubtedly aware) to be a bit more prudent of careful about is statements.
My money is on Buffett riding his own prophetical train and bail out before it crashes through the terminal station. I expect him to make a lot of money. No guarantees on my part. Of course I cannot predict Buffett’s actions in the near future. Consider that my disclaimer.