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Dec.01

1:34 PM ET

Monday, 1 Dec 2008

Taking On Dr. Doom: Warren Buffett's 'Buy and Hold' Strategy Is Alive and Well

Posted By:Alex Crippen

Topics:Stock Market | Investment Strategy | Warren Buffett

Companies:Berkshire Hathaway Inc.

Defending Buffett
Don't make travel plans just yet for the funeral of Warren Buffett-style 'buy and hold' stock strategy. One well-known value investor says it's more important right now than ever.

The combination in recent months of a steep decline for stock prices and a dramatic increase in volatility have prompted some early death notices for the strategy of buying a good stock at a good price and holding it for a long period of time.

This morning on CNBC's Asia television programming, the investor known as Dr. Doom was kicking the 'corpse.'

Marc Faber, editor and publisher of The Gloom, Boom & Doom Report, delivered this autopsy report:

"We've moved into an environment of very high volatility where you will have up and down moves of, like, 20 percent all the time and that is a traders' market... The Warren Buffett approach is dead and it's been dead for ten years and it's going to be dead for another ten years ... We can have huge rebounds and then huge downturns again and I think the best for the average investor is to play it relatively in small amounts and not gear up and take big risks."

Value investor Whitney Tilson has been doing a lot of Buffett-defending recently on CNBC's Fast Money and in the New York Times, so I emailed him for his response:

"It is, in fact, precisely during times of high volatility that the long-term-oriented approach of Warren Buffett, rooted in the ageless concepts of intrinsic value and margin of safety, work best. No-one can possibly predict the short-term moves of this crazy market, but it's actually fairly easy to find good companies with stocks that are deeply undervalued if one looks out a few years -- and has the courage and conviction to weather the near-term volatility."

Berkshire Hathaway is not only one of those stocks, says Tilson, it is his "favorite" right now and undervalued by at least 25 percent. "We believe the company is well positioned to weather -- and even take advantage of -- the storm."

Current Berkshire stock prices:

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