The Reality: We are facing real challenges.
I really hate to admit it, but I think there is more bad news on the horizon. The news coming out of the hedge fund industry is really troubling, and the issue with this industry’s challenges (like that of the banking industry) is that as these firms are forced to sell assets en-masse, values of securities fall in a disproportionate relation to their intrinsic value.
This phenomenon is very similar to the one that is occurring in the housing market: banks are foreclosing on houses, and selling them into a market where there are not enough buyers.
These pressures are likely to remain for awhile. And we should be prepared for this.
In addition, the pressure that the middle class in America is feeling from strained personal balance sheets in addition to a growing pessimism about the economy will likely cause spending to fall as: 1) people stop buying because they are worried and 2) people stop buying because they just can’t stretch any farther and no one will lend to them.
All of this is likely going to materialize slowly over the next few weeks and months.
Warren Buffett’s Pro-American stance.
However, now is not the time to dwell on these issues.
As I mentioned below (Dealing With Bad News), it is natural to retreat into a cave when bad news strikes. People don’t like to face the music and unfortunately this is materializing in the markets as investors stand on the sidelines in fear.
However, at least one investor – and arguably the best investor in History – is buying American stocks. And urging the rest of us to do so: Buy American. I Am.
If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.
Why? A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors.
Over the long term, the stock market news will be good. 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.
Warren Buffett is stepping up in the way that few others in this country have done yet to point out in simple and clear terms: America has the best economy in the history of the world, and we can’t lose sight of all of the great companies and innovation going on here today and the strength of our economy in the long term.
Case in point, Google, a perfect example of the kind of innovation that makes this country great, has continued to grow as advertisers continue to recognize that the old media’s approach – pushing ads down people’s throat – has been defeated by Google and others who allow us to consume our content (and our advertising) in ever more flexible and personalized ways.
In addition to Google and new media there are exciting things happening in education, clean technology, biotech & healthcare, the entertainment industry, the power industry, biotech plastics, and many other industries.
So before you give up on our country while it is down, step back for a moment and think about it.
Optimism has real impact.
Someone I admire a lot told me today about a study that was done recently where 2 groups were given a set of identical household tasks to perform over a period of weeks. Group 1 was told nothing special about their chores. Group 2 was told that the tasks they were performing as a good form of exercise and good for their health by a group of healthcare professionals.
A surprising result ensued: those who *believed* their efforts were healthy for them lost weight, lowered their blood pressure and got healthier.
This was a study done by serious researchers at a major academic institution. The takeaway: our perspective sometimes matters as much as the reality.
I believe we are capable of facing the world, the good and the bad parts of it, and keeping our optimism intact. And right now our country needs us to do just that.