Even Buffett can't pick the bottom of this share market, admitting his call to buy shares was a few months early. Yet he remains a buyer of shares, and even gives his millions of followers a free share tip.
We know the economy is bad. But when the world's best ever investor Warren Buffett says in a recent TV interview the US economy has "fallen off a cliff" you know things are really bad.
The same can be said about the UK economy. You only have to pick up one of the popular newspapers to read about how bad things are. Unemployment is perilously close to 2 million. House prices continue to fall, with the Halifax (RIP) recently confirming they fell by 2.3% in February.
And all that despite base interest rates being at just 0.5% and the Bank of England set to start the printing presses, pumping £75 billion of fresh, crisp pound notes into the economy.
We've known how bad the economy is for a while now, and that it's going to get even worse. Many economists think this is the worst recession since World War II, and possibly the worst since the Great Depression. Given those periods cover 1973/74, during which we had an oil crisis, a stock market crash and the 3-day working week, we better brace ourselves for some tough times ahead.
A Free Share Tip
Warren Buffett's interview on American television came just after he revealed in his annual letter to shareholders that he too had a shocker of a year in 2008.
As well as saying the US economy has fallen of a cliff, he also said economic developments have been very "close to the worst case" that he had imagined. 78-year old Buffett has seen the odd recession or two in his time, but seemingly never one as bad as this before.
Yet Buffett remains an optimist. He remains positive about the stock market, insisting that over 10 years, "you will do considerably better owning a group of equities" than US treasury bonds.
He even went as far to give his millions of followers a free stock tip, saying American Express (NYSE: AXP) will be "around forever" and is a "hell of a buy" at $10. The shares jumped a modest 3.7% higher on the day of his tip. Perhaps Buffett has lost his lustre of invincibility or war-weary investors are preferring to wait and see before piling into the market.
Even Buffett Can't Time This Market
Regular stock market followers will know of Buffett's New York Times article of October last year in which he urged readers to follow his lead and buy shares. Since then, the Dow Jones Industrial Average has fallen over 25%. Here in the UK, the FTSE 100 has fallen a far more modest 8%.
Buffett revealed he stands by the article, but he just wishes he had "written it a few months later."
By my calculations, that means he wishes he'd written his article about now. He'd be saying the same things as he said in October, like "Be fearful when others are greedy, and be greedy when others are fearful."
For Buffett, despite the shocking economy, despite knowing the economy is going to get worse before it gets better, he remains a long-term buyer of shares.
He does refuse to be drawn on whether he thinks this is the bottom of the market, saying "I would never have a feeling that the Dow is going to go to 2,000 or 12,000 or 4,300 or 20,200."
He went on to say "I know over time it will go higher…if you buy a cross section of good equities, generally well capitalised companies, you'll make money over 10 or 20 years. I haven't the faintest idea where you'll be in 10 months, but it really doesn't make any difference."
Completely Wrong
If ever there was a reminder that a) investing is a long-term endeavour and b) especially in these volatile markets, low share prices aren't necessarily a good indication of the true value of a company, this is it.
Take BP (LSE: BP) for example. Last week, in an article titled The Mad Market Gets It Wrong Again, I suggested the market had got BP's share price completely wrong. How else can you explain why this huge British company was trading on a dividend yield of 9.4%, especially when it is compared to the 3% you can earn in a high interest savings account?
Buy When Shares Are Low
This market is making a fool out of everyone, even Warren Buffett, the greatest investor of all time. As he amply proves, picking the bottom of the market is a mug's game. You simply cannot time the market.
Forget timing the market. Time in the market is what you need to be concentrating on. As Buffett says, by buying good quality shares, you'll make money over 10 or 20 years. And now, with the market close to a 15-year low, is a much better time to be buying shares than when it was all the rage just over a year ago.
If Buffett's investing approach makes sense to you, now's a great time to begin bargain-hunting. Like Buffett, Chief Analyst at The Motley Fool's Champion Shares premium stock picking service is amazed by the bargains he's finding today. If you'd like some help getting started, click here to try the service free for 30 days.
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> Bruce Jackson does not have an interest in any of the companies mentioned in this article..
