It has been the worst of times for investors. All the rules seem to have gone out the window as even the security of our own venerable banks has been called into question.
Where can we hide? Who can we turn to? What does it all mean? These were the questions in mid-October as a sense of panic gripped not only global markets, but those in New Zealand as well.
The Reserve Bank’s undertaking to guarantee cash deposits in a range of financial institutions put out the fire immediately, and calm was restored.
So it seemed that the answer was move into cash. Move into cash and be safe. Move into cash and be safe as the official cash rate starts to plunge!
Warren Buffet the renowned investor wrote an article that appeared in the New York Times on October 17th. Here’s what he had to say about cash.
“Today, people who hold cash equivalent feel comfortable. They shouldn’t. They have opted for a terrible long term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts. Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling to cash now are betting that they can time their move away from it later. In waiting for the comfort of good news they are ignoring Wayne Gretsky’s advice, “I skate to where the puck is going to be, not to where it has been.”
Buffet said, “ So – I’ve been buying American stocks. Why? A simple rule dictates my buying. Be fearful when others are greedy and be greedy when others are fearful. Most certainly fear is now widespread, gripping every seasoned investor.
To be sure, investors are right to be wary of highly leveraged businesses that are in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies makes no sense.
Let me be clear on one point; I can’t predict the short term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month or a year from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.”
Richard Hurley, director Auckland City Brokers Ltd. Disclosure Statement is available on request and free of charge – richard@acbrokers.co.nz
