Buffett's Bull Market

On October 17, 2008, the world’s greatest living investor wrote an op-ed piece in the New York Times.

Titled “Buy American. I am,” Warren Buffett wrote:

The financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So… I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds.

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.

When Warren’s article was published, the Dow was sitting at 8,975. Five months later, the Dow hit a low of 6,440.

Many believed Buffett had lost his fastball.

After all, the Oracle was approaching 80 years old…

But had you purchased the Dow on the day Buffett told you to do so, you’d be up nearly 45% right now.

This past Saturday, Buffett released his Annual Letter to Berkshire Hathaway shareholders. Many investors consider this to be the stock market equivalent of the Farmers’ Almanac.

His letter was quite upbeat and bullish.

Buffett said, “Equities are still cheap relative to any other asset class” as the economy continues to improve.

He explained that even though stocks aren’t as cheap as they were during the depths of the recession in 2008, they’re still a more attractive long-term option than bonds, gold, cash, or anything else.

In his letter, Buffett devotes two pages to an explanation of why he prefers owning a piece of a productive business instead of bonds or gold.

He believes houses are another attractive investment at current prices.

The fact of the matter is Warren is right.

Things are looking a lot better in the U.S. economy.

Take auto sales, for instance. They’re skyrocketing.

According to reports out of Detroit:

Auto sales are growing so fast that Detroit can barely keep up.

Three years after the U.S. auto industry nearly collapsed, sales of cars and trucks are surging. Sales could exceed 14 million this year, above last year’s 12.8 million.

The result: Carmakers are adding shifts and hiring thousands of workers around the country. Carmakers and parts companies added more than 38,000 jobs last year, reaching a total of 717,000. And automakers have announced plans to add another 13,000 this year, mostly on night shifts.

You don’t need a report to see the recovery…

Living in Maryland, I’m close to the Marcellus drilling boom.

I’m seeing a ton of new Ford F-150s and Dodge Ram 1500s on the road… and I mean a ton.

Housing is on the rise, too.

Contracts to purchase previously-owned U.S. homes neared a two-year high in January.

The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in January, increased 2% to 97.0 — the highest reading since April 2010.

New contracts generally lead sales by a month or two.

Of course, all of this has been predicted by the stock market…

The Dow sits at a four-year high. The NASDAQ is at a 12-year high. And the Russell 2000 is within 40 points of an all-time record high.

If Warren Buffett is correct — and stocks are relatively cheap right now — then these indexes will be at record highs soon.

The original bull on America,

Brian Hicks

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Brian is a founding member and President of Angel Publishing. He writes about general investment strategies for Wealth Daily and Energy & Capital. For more on Brian, take a look at his editor’s page.