Warren Buffett amassed his incredible fortune not by timing the stock market, but rather by careful fundamental analysis and the buying of businesses he felt had excellent upside.
So when Buffett speaks on the stock market, you have to listen.
He doesn’t have the same market clout he once had in the 90s, when investors tuned into every word that came out of his mouth, but you still have to listen to what he says.
In an interview on CNBC Squawk Box, Buffett expressed his negativity toward bonds and said he would not buy them. (Source: “Warren Buffett: Stocks Will Go ‘Far Higher’ Over Time,” CNBC, May 6, 2013.) This is no big surprise, given the extremely low yields offered in bonds versus the stock market, where the prevailing dividend yields are much more attractive and also offer better tax treatment. And in addition to dividends, you can make money via the price appreciation of a stock.
Buffett suggested that the stock market would inevitably go a “lot higher” over the longer term and advised investors to ignore the short-term fluctuations. Buffett remains a buyer and scours for long-term investment opportunities in the stock market.
His Berkshire Hathaway, Inc. (NYSE/BRK.A) stock is a diversified holding of over 50 companies that represent a broad range of corporate America. Its businesses include financial services, industrial, medical, apparel, media, homes, jewelry, furniture, steel, and others.
Berkshire Hathaway’s broad businesses make the fund ideal for the investor looking for a highly diversified company in the stock market that would provide an excellent alternative to a mutual fund and, best of all, is run by an investment guru who has a long history of outperforming.
The only caution is the advancing age of Buffett, which could become an issue sometime down the road, as there really is no one like Buffett. The succession plan calls for a group arrangement led by a new CEO, along with three to four investment managers.
For the majority of individual investors, the current price of $165,228 a share, as of Monday, is likely an issue. An alternative would be the lower-priced “B” shares; at $109.00, these shares are designed to emulate the “A” shares, but at a more manageable price level for investors.
And in spite of the current turmoil in Europe (see “Why America Will Struggle if the Eurozone Languishes”), Buffett remains supportive of the region and advises there are buying opportunities in the European stock market.
While I feel Europe and the eurozone are positive over the longer term, I question the short- to mid-term prospects and feel the region is still vulnerable to further weakness. Buffett has a long-term perspective on the stock market, so I’m not surprised with his view to buy and ignore the short-term.
I would rather wait and buy Europe when there are clearer signs of a turnaround. I would also be more cautious of the domestic market and would look to buy on weakness.