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What Warren Buffett told me

Buffett and Siegel make compelling arguments; thus far there’s little reason to sell in May.

Warren Buffett, investor extraordinaire and one of the richest men in the world, looked me straight into the eye and said: “Buy stocks. Go long America and avoid bonds at all costs.”

Warren Buffett? Berkshire Hathaway? Omaha?

Wasn’t I the guy who said the annual pilgrimage to the annual general meeting of Berkshire Hathaway in Omaha, Nebraska, in the good old USA is merely an ego-fest, a jolly, for those fund managers and advisors with too much time and money on their hands? Or as Sasfin’s David Shapiro called it on SAfm’s Market Update with Moneyweb earlier this week: “Woodstock for capitalists.”

That’s right, the selfsame one.

But rest assured, gentle reader, I didn’t have a change of heart late last week and jump onto a jumbo 747 to join the 35 000-odd devotees who reportedly crammed into the giant investment stadium to listen to Buffett (82) and his partner in profits, Charlie Munger (89) and their views on their company, investment strategy and virtually everything under the sun.

No, I was sitting happily ensconced behind my desk with my PC, iPad and television in front of me surfing the internet for interviews, comments and even a minute-by-minute download of the event, as one would with cricket or rugby. Next year, I’m sure, there will be global Twitter coverage seeing that “Warren Buffett is in the house,” as he tweeted last week for the first time.

As usual, the two major business TV-channels, Bloomberg and CNBC had wall-to-wall coverage of the proceedings. I think it was when Buffett was being interviewed by Carol Loomis on Bloomberg on Sunday that he looked straight at me and gave the insight that will change my life forever.

I repeat what I said some two months ago: I cannot make a case for me to jump on a plane and travel halfway around the world to listen to Buffett and Munger. I can do the same from the comfort of my study.

But to each his own, I say, and certain of my friends and colleagues have just returned from Omaha, sans R50 000 or so, and they are all raving about what they experienced.

“How close to Buffett did you actually get?,” I asked one.
“Not very close, but there were large screens all around the hall which helped a lot,’ he added.

It reminded me of the time when Luciano Pavarotti, the late famous Italian tenor appeared at Loftus Versfeld some twelve years or so ago. Everyone but everyone bought tickets for this much-hyped event and off we went, my wife and I, together with 60 000 other opera fans, determined not to miss out on the biggest event on the social calendar that year. Even with tickets costing the price of a small motor car, we sat on the southern stands, facing the north stand where the stage was built and where the great man was to appear.

Do the arithmetic: a rugby field is roughly a 100 metres long, add the five metres for the in-goal area on both sides plus another 20 metres in the stands where we sat. That made it about 140 metres away from the stage. All we could see was a miniscule little man of 150kg belting out his famous songs in the distance. Even two large screens on both sides of the northern stand didn’t do much to appease our disappointment.

Certain commentators on Moneyweb seem to have decided that I am “anti-Buffett” or do not rate him highly. That’s as stupid as me saying Usain Bolt can’t run or Tiger Woods can’t play golf. It simply is not true.

I have probably read every book written about Warren Buffett, his achievements and his much vaunted value-style of investing. The only book I haven’t read is the book written by Buffett himself and the only reason for that, is that he hasn’t written a book as yet.

His story is a fascinating one and every investor can learn a lot from the way Buffett approaches money, life and investing. For instance, he started investing in the stock market at age 14, with money he earned from delivering newspapers (the one he now owns, namely the Washington Post) and still today complains that he waited too long. He lives in the same house he built when he got married about 40 years ago ,drives his own car and reportedly flies commercial airlines instead of chartering one of his own company’s corporate jets, saying they are too expensive.

It’s also not very well known that very early in his investment career he was investigated by the Securities Exchange Controls for certain irregularities at his first investment company, which resulted in a $100 000 fine.

But he did say “Buy America and avoid bonds,” and he did look me straight into the eyes, or at least I would like to think he was speaking to me.

So too did another famous economist on Bloomberg this week, Professor Jeremy Siegel from the Wharton Business School. “Buy equities and avoid bonds,” he also said.

Questioned on his views on the Dow Jones index this week he raised the eyebrows of the interviewers when he said the DJ100-index could end between 16 000 and 17 000 by the end of the year. That’s another 8 to 15% from current levels.

“Did you say 17 000?” the interviewer asked incredulously. Again he replied emphatically, that this view is driven by interest rates. “With interest rates at zero for deposits and long term TB offering yields of 1.6% you have to rotate to equities.

Siegel wasn’t too concerned about PE-valuations at around 14/15 currently, saying that earnings are growing plus there is a rerating taking place which can take average earnings to around 18/19 by the end of the year.

Even then, he said, would the market not be in bubble territory. “Bubble territory is when PE ratios climb to 35 and 40 like they did in the dotcom and IT-bubble almost fourteen years ago,” said prof. Siegel.

It’s hard to argue with Buffett and Siegel about the outlook for global equity markets. Siegel makes a very good point that the resounding revival in the US residential and commercial property market is having a major effect on the balance sheet of Main Street America.

It’s almost middle May and so far there is very little reason to Sell in May and Go Away. Or will it be a case of Sell in June and Avoid the Swoon this year?

*Magnus Heystek is a director of Brenthurst Wealth.


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