Warren Buffett: "Bad News is an Investor's Best Friend"

In these times of turmoil it might be a good time to reflect on some poignant words from one of the world's greatest investors. Warren Buffett writes, “During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent.” He goes on to say, "Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend."

To quote more of Buffett's words of wisdom:

"Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky's advice: 'I skate to where the puck is going to be, not to where it has been.''

"I don't like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I'll follow the lead of a restaurant that opened in an empty bank building and then advertised: 'Put your mouth where your money was.' Today my money and my mouth both say equities."

Wise words if you have the money of course....

Ranking World Banking

As banks around the world rush to guarantee depositor’s funds just how risky are banks? A survey recently conducted by the World Economic Forum shows the following top five ranking countries with regard to safe and sound banking systems:

1. Canada
2. Sweden
3. Luxembourg
4. Australia
5. Denmark

New Zealand comes in at number eight while the USA comes in at number 40 (behind Chile and Namibia) and just behind Germany at number 39. Britain once ranked in the top five but now only makes 44.

Source http://www.weforum.org/GCR0809_Browser

Comment: Give KiwiSaver a Fair Go

Watching the trailer for Fair Go last week I was left wondering what on earth could have happened that would make a young boy (age seven) warn people against KiwiSaver. I guess it got the right reaction in that I just had to watch it.

Following the item on the TV I fully expected to be inundated with calls the next morning from worried parents and grandparents. I must have explained it well enough as this didn’t happen.

I found it a concern that no mention was made about being able to take a payment holiday 12 months after the first contribution (the Act defines a contribution as: “any contribution to a KiwiSaver scheme, including an employer contribution and a Crown contribution”). Certainly older children who are in a position to work and pay PAYE just as the 17 year old featured was would have to pay 4% of their income but as for the seven year old saying he was “stuck” in KiwiSaver….

KiwiSaver is not a place to save for education, weddings, overseas travel or anything short term. It is what it was designed as – an investment vehicle for retirement. This doesn’t mean that kids can’t benefit from KiwiSaver even if they never ever make a contribution themselves. The effect of compound interest on their $1,000 kick start should teach them about the importance of starting early. This surely is a valuable lesson. So Fair Go, don’t forget to publish all the facts and indeed give KiwiSaver a fair go.

Savings Tips for Hard Times.

The best way of saving is to have a portion of your paycheck automatically deposited to your savings account. With times getting tough and costs spiraling it is becoming harder to find that extra bit of cash to put away, or even to use for everyday expenses. For this reason I thought I’d do a series of savings tips to help the situation.

Please feel free to add your tips for others to share.

• Carpool or use public transportation. This will help save on gas, insurance and maintenance costs.

• Hold a garage sale. Be ruthless, if you have not used something for more than six month or more, let it go. Easier said than done –- I tend to be a hoarder myself.

• If you smoke -- give it up. The money saved does not even begin to touch on the savings in insurance and health care. Once you’ve been ‘smoke free’ for 12 months ask the insurance company to reassess your insurance costs.

• Consider the library for books, music and movies. Eat out less often. The average person spends $2,276 a year on eating out.

• Consider renting out a room in your home to an overseas student.

• Pay your credit card in full each month and only use it in emergency for temporary cash flow management. If you have been using your credit card until it has got out of control give it to a trusted friend in a sealed envelop and ask that they do not allow you to use it unless there is a valid reason. Make payments in excess of the minimum requirement.

• Build an emergency fund to handle unexpected expenses. This allows you to become your own lending agency.

• Make a list when shopping. Never go to the grocery store when you are hungry, you will only spend more. And, who knows, you may find that you loose weight!

Follow the above savings tips and you could be looking at saving something like $12,000 a year. Instead of debt, go for an emergency fund and save.

Don’t forget to add you own savings tips.

Volatile Markets: A Quiz

“ A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices?

These questions, of course, answer themselves

Question: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period?

Answer: Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the “hamburgers” they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.”

Warren Buffet made this point in the 1997 Berkshire Hathaway annual report. A decade on and we nothing changes: Markets are volatile.

Markets go up and down but as buyers we should celebrate the falls and buy on sale. It's true that the finance industry is one place that many do not rush to purchase on sale.

End of Month Stock Roundup

• Following the Federal Reserve slashing of interest rates by a half-percentage point U.S. stocks showed gains on Wednesday, sending indexes up more than 1 percent -- boosted by hopes that the economy would avert a recession.
• New Zealand's sharemarket started out well yesterday but ended up negatively.
• Despite a positive start to the day, Australian shares started a decline at lunch time and continued to edge lower to the end of the session yesterday.
  
• Ahead of the US Federal Reserve interest rate decision Japanese shares lost momentum amid gloomy earnings reports.

A Gold Commodity

As the dollar declines in value commodities, such as gold and platinum, rise to record highs. Prices for cotton and corn are on the rise. Gold is always seen as a good hedge to cash and there is increasing demand in countries such as China and India which may help to support the price of gold.

So what is a commodity? According to Lamonts a commodity is a tangible asset that has a market value. The term normally applies to raw material and foodstuffs and is traded on various exchanges around the world.

Something for you to start the New Year

I'm evaluating a multi-media course on blogging from the folks at Simpleology. For a while, they're letting you snag it for free if you post about it on your blog.

It covers:

• The best blogging techniques.
• How to get traffic to your blog.
• How to turn your blog into money.

I'll let you know what I think once I've had a chance to check it out. Meanwhile, go grab yours while it's still free.