Warren Buffett's Market Call

Do as Warren Does?

Perhaps the most-remarked news in the financial world the last few days -- quite a statement given the current decibel level -- is Warren Buffett's stock market call. On Friday's Wall Street Journal op-ed page, Buffett, Edina Realty's largest shareholder (via his interest in Edina's parent company), famously exhorted fellow investors to step up and buy. Stocks, that is.

According to Buffett, the winning investment strategy is to "be greedy when others are fearful, and fearful when others are greedy."

Judging by just about every metric there is -- the media, the VIX (volatility benchmark), consumer sentiment, etc. -- fear is running quite high. Ergo, it must be a good time to buy, right? Maybe.

Copying Buffett

Before anyone emulates Buffett, however, they should ask themselves three questions: 1) what is my time horizon? (Buffett's is effectively infinite); 2) do I have the resources to weather further market reversals? (Buffett, with a net worth of $60 billion, certainly can); and 3) can I get the same terms as Buffett?

If you're planning on retiring in a few years, sending your teenager(s) to college soon, or saving for a house downpayment, you probably have a very un-Buffett-like, finite time horizon and resources.

Meanwhile, Buffett gets preferential treatment when he invests because . . . he's Warren Buffett. At both Goldman Sachs and General Electric, he is receiving a 10% dividend, indefinitely, on his preferred stock, with warrants to buy more at below-market prices. Good luck trying to get that on your own.

That doesn't necessarily mean Buffett is wrong about the stock market, or that his advice is bad. On the contrary, his main observation -- stocks are historically cheap now -- is almost unassailably true.

My guess is that investors will take Buffett's advice to heart. However, the people heeding his advice likely aren't stock buyers, but would-be Sellers.

The main consequence of Buffet's advice -- and quite possibly the purpose of his op-ed piece -- is to persuade millions of people who are already in the market to stay there (vs. sell, and add to the panic).