Robert Lenzner, 02.02.09, 06:00 AM EST
Even the smartest investor suffers as the economy drags down stocks of all stripes.
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Stock prices are back down to where they were a decade ago. As investors retreat into cash to ride out the economic crisis, they are betting that cash will protect them better than buying equities that are already down 50% in some cases in just the past 12 months.
Even the Oracle of Omaha has been having a rough time of it. Berkshire Hathaway
Heavily committed to banking and financial shares, Buffett saw his $8.5 billion position in Wells Fargo
Berkshire's portfolio was damaged too by declines in consumer favorites like Coca-Cola
Buffett took it on the chin with General Electric
What does Buffett think about the market today? In his usual, understated style, he told public television several days ago, "There are a lot more things selling at sensible prices now than there were two years ago. So, clearly it's a better time to buy stocks than a couple of years ago. Is it better than tomorrow? I have no idea."
Buffett was very clear that he had no idea whether the Obama stimulus program was going to stabilize an economy that is plunging worse than the stock market. As to Berkshire Hathaway, Buffett disclosed that its two biggest businesses, insurance and gas utilities, are immune to the consumer pullback. By comparison, his consumer businesses, whether construction or housing related, are "doing very, very poorly. The American consumer has stepped back big time and it's contagious."
So, what stocks does Croesus guess Buffett may be buying in these uncertain terms? More NRG Energy
In the meantime, many investors are suffering from the buy-and-hold tactics of their investment advisers. Tales abound of large money management firms riding the emerging markets, technology and financial service stocks without paring down investor positions. Those who bought index funds have lost all the gains made by the market averages since 2003. They rode up with the bubble and back down as it burst. This amounts to a serious inadequacy in the management of the public's money. Investors have to pay close attention and initiate the moves to take some of their savings out of the market.
Hope is receding that in the short or intermediate term the Obama stimulus program will put a floor under the market. Far from it, the $800 billion program is mainly geared to meet the emergencies faced by those out of work and out of their medical health plans or employed by states and cities supplying basic services. This is not going to reignite the economy.
The priority today is stabilizing those unemployed rather than creating new jobs. This is an enormous quandary.
Investors that have taken a complete round trip for the past decade can take some solace that even the greatest investor of our times does not know what policies will work or how long this bear market will last. Buffett doesn't have a firm clear prediction for when the pain will be over. Cash is king, even as gold and municipal bonds rally.
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