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Warren Buffett: You’ve done it again

I’ve been warning investors to steer a wide berth around the blue-chip, high yielding darling stocks, like Wesfarmers (ASX: WES), Woolworths (ASX: WOW) and the big four banks.

A few weeks is hardly a period over which to claim victory, but with Woolworths falling from $36 back to $34, Wesfarmers from $43 to $40 and Commonwealth Bank (ASX: CBA) from $71 to $68, I might be onto something.

If you thought things were bad in Australia…

Today, Cyprus is the word.Poor Cyprus is in terrible shape. After securing a bailout of its banking sector, the tiny island nation faces an economic adjustment virtually assured to lower the quality of living for most of its citizens. No wonder youths are protesting in the streets.

Yet despite a mild pull-back, which may have been justified anyway, especially in Australia, given the stellar run in the share prices of the ASX’s biggest companies over the past few months, markets have remained remarkably calm.

The doomsters will say the day of reckoning is still to come, and it’s only a matter of time before the euro collapses, dragging the world economy into “GFC Part II — This Time It’s For Real” and sending stocks crashing into oblivion.

Shock: It’s a bull market…

The only problem is they’ve been saying that all along…a time in which the S&P/ASX 200 has jumped 60% from its March 2009 lows, and the Dow has soared 120%, once again trading back at an all time high.

Make no mistake. This is one of the greatest bull markets of our time, and despite some periodic wobbles, one that is now into its fifth year.

No wonder, a few weeks ago, Richard Bernstein told The New York Times

“What’s amazing about this bull market is that people still don’t think it’s real. We think this could be the biggest bull market of our careers.”

You won’t find such unbridled bullishness coming from these Foolish pages. We prefer to let the stock-picking results of Motley Fool Share Advisor, our premium stock-picking service, tell the story.

Here at The Motley Fool, we are unashamed optimists. When markets wobble, we see opportunity. When markets rise, we sit back and enjoy the gains.

Whatever the market, we remain believers in the long-term compounding effects of investing in the stock market.

Again, the numbers don’t lie. Last year a survey from advisory firm Russell Investments found Australian shares were the best performing asset class in the past 20 years, even beating residential property.

At the time of the article, the S&P/ASX 200 was trading below 4,000. Today it’s hovering around 5,000, a time in which Australian property prices have stalled, returns on cash have plummeted, and Australian bonds are on the nose.

Gold bugs to Cyprus — this is not good enough

Even gold has lost its lustre, despite the gold bugs desperately trying to use Cyprus as a reason to pump up the price of the precious metal.

It’s not working.

Overnight, gold fell for a third straight session, trading just below $US1600.

As ever, you don’t have to look too far to find fans, including HSBC who have slapped a price forecast of $US1700 an ounce in 2013 and $US1720 an ounce in 2014.

I wonder what the catalyst might be to push gold up that extra $US20 between 2013 and 2014?

More weddings in India? Or Russian billionaires buying gold instead of parking their money in low-tax but ultimately ultra-risky Cypriot bank accounts? Watch this space…

When it comes to gold, we can’t go past Warren Buffett who once said…

“The problem with commodities is that you are betting on what someone else would pay for them in six months. The commodity itself isn’t going to do anything for you…it is an entirely different game to buy a lump of something and hope that somebody else pays you more for that lump two years from now than it is to buy something that you expect to produce income for you over time.”

Like dividend -paying shares, for example?

Warren Buffett — you’ve done it again

Speaking of Warren Buffett, Bloomberg is today reporting that his Berkshire Hathaway company will pay $0 to be amongst the biggest shareholders in investment bank giant Goldman Sachs.

If that sounds like a pretty sweet deal, you’re right. There is only one Warren Buffett.

As you may remember, Goldman Sachs turned to Buffett at the absolute height of the GFC, his $5 billion investment in the firm helping it shore up its capital after its stock tumbled.

It was typical Buffett, being greedy when others were fearful.

I’ve today enjoyed re-reading Buffett’s New York Times OpEd, written in October 2008. Lehman Brothers had collapsed. Blood was in the streets, and as Buffett said himself, “the financial world is in a mess.”

Yet there was more pain to come. The market didn’t bottom until March 2009. It was a long 6 months…but not for Warren Buffett.

Buffett gets last laugh, as usual

As usual, Buffett had the last laugh.

Today, five and a half years later, he pays zero dollars to become one of Goldman Sachs top shareholders. The investment bank sports a market capitalisation of close to $US70 billion.

I urge you to read Buffett’s October 2008 OpEd, for as a lesson in investing during a crisis, it’s about as good as it gets.

My favourite passage is this…

“You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.”

Investing should be a lifelong endeavour, not something you pick up when the going is good and dump when returns turn south.

Waiting for the next market crash, and waiting, and waiting…

Today, the market is a little hot at the top end, a little cold at the bottom end, and just right in the middle.

Market panics are few and far between. Wait for the next one, and you’ll be waiting a very long time, potentially decades, as was the case between the crash of 1987 and the GFC of 2009.

My safety net comes in the form of cash. I always have a decent chunk sitting on the sidelines, waiting for a bargain or two, or a bout of market panic, or both. Often the two come hand in hand.

I might miss out on some stellar returns, and sell too early, as I did by selling some of the family’s long-held big four banking shares at prices below those on offer today, but I can sleep well at night, and live to fight and profit another day.

Speaking of profit, and seeing as I mentioned dividend paying shares above, you might want to check out our FREE report titled “3 Stocks for the Great Dividend Boom”. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

Why Cyprus matters for investors

Over-taxed and confused

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Motley Fool General Manager Bruce Jackson has an interest in Wesfarmers, Woolworths, Commonwealth Bank and the other 3 big ASX banks.

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