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Oct.20

7:11 AM ET

Monday, 20 Oct 2008

Betting Against Warren Buffett: Skeptics Question His Call to Buy U.S. Stocks Now

Posted By:Alex Crippen

Topics:Investment Strategy | Stock Market | Warren Buffett

Warren Buffett has very publicly proclaimed that now is the time to be "greedy" and buy U.S. stocks, because everyone else is fearful, and those fears are driving down stock prices to bargain levels.

While we've heard praise for his leadership and courage, there are also skeptics.

WARREN BUFFETT LEADS WITH A BOLD "BUY" CALL .. BUT IS ANYONE FOLLOWING?

On MarketWatch.com, David Weidner says investors need to be "careful" about following Buffett's advice to buy U.S. stocks.

He implies that Buffett's New York Times piece Friday is an attempt to rescue two big investments Berkshire Hathaway made recently in General Electric and Goldman Sachs.

Along with billions in special preferred shares, Berkshire also received warrants allowing it to buy common shares in the two companies at prices that were below the market at the time of the deals.

"The problem for Buffett is that his warrants were becoming worthless as GE and Goldman stock fell. One cheap, easy way for Buffett to reverse his losses is by penning an editorial using his huge sway, folksy style, and hints of patriotism to stir up some buying."

Weidner agrees with Buffett famous line, "Be fearful when others are greedy, and be greedy when others are fearful." But in his interpretation, it's Buffett who is among the "others" driving "very greedy sweetheart deals," leaving the rest of us to be fearful.

On Seeking Alpha, Devin Hobbes is not as cynical, but does question Buffett's timing, saying he likes to be early. In his Times piece, Buffett cited hockey great Wayne Gretzky's advice to "skate to where the puck is going to be, not where it has been."

Hobbes has what he calls a "better" analogy: Buffett's style is like getting to a New York City subway station before the train arrives. A puck may take a second or two to arrive, while "the wait for an MTA subway train can take hours. Buffett gets to the subway station extra early."

To back up his case, Hobbes cites less than stellar returns for some recent Berkshire buys: NRG Energy, Sanofi-Aventis, Burlington Northern, Kraft, US Bancorp, WellPoint, and United Health.

His bottom line: "Just because Buffett is buying now it doesn't mean you have to rush to buy stocks. There's plenty of time to do thorough research before jumping in. And when you do jump in, don't buy everything in one order. It's best to do it over a number of days, weeks, or months."

Michael Bloomberg
Jason Decrow / ASSOCIATED PRESS
New York City Mayor Michael Bloomberg agrees with Warren Buffett that there are opportunities for long-term investments, but advises gradual purchases of mutual fund shares.
New York City Mayor Michael Bloomberg, a fellow billionaire, says he agrees with Buffett that there are opportunities to make long-term investments. But he also believes investors shouldn't throw in all their money at once, and cautioned against buying individual stocks. "Buy mutual funds. It's that you need the diversity."

Even if you want to buy stocks and/or mutual funds now, however, there could be a problem, as one Times reader points out in a 'Letter to the Editor.' "The flaw in Mr. Buffett's theory is that most Americans don't feel that they have sufficient assets remaining to be able to 'park' monies in the market for the next 15 to 20 years... Unlike Mr. Buffett, we don't have the luxury of taking whatever we have not invested in the markets and plunking a portion of it into a raging inferno. We need the safety net in our pockets to get us through these difficult times."

Current stock prices:

Berkshire Class A: [US;BRK.A Loading... () ]