It's Time to Get Rich in Stocks
By Dr. Steve Sjuggerud
October 28, 2008
"I feel like an oversexed man in a harem... Now is the time to invest and get rich."
That's what Warren Buffett told Forbes Magazine in late 1974. Before Forbes could even get the issue to print, the Dow had soared 15%.
In December 1974, the Dow sat in the 500s. Then it zoomed in 1975. By early 1976... less than 18 months later... the Dow topped 1,000.
In my opinion, the next 12 months could be like 1975. I believe we're in for an exceptional year.
"Today on Wall Street they say, 'Yes, it's cheap, but it's not going to go up.' That's silly." That's another 1974 quote from Buffett.
Buffett was exactly right. Stocks peaked in the 1960s. They finally bottomed after a particularly nasty crash in 1973 and '74. The Dow started January 1973 in the 1,000s, before falling into the 500s by December 1974. Then came the bull market of 1975... right on Buffett's cue.
Earlier this month, Warren Buffett made his most bullish call since that late 1974 Forbes article. This time around, it was in the New York Times:
A simple rule dictates my buying. Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors.
So I've been buying American stocks... Bad news is an investor's best friend. It lets you buy a slice of America's future at a marked-down price. Over the long term, the stock market news will be good.
Today is similar to back in 1974, the last time Buffett said it's time to get rich in stocks... This time, stocks have fallen as much from 2000 to 2008 as they did from 1966 to 1974, adjusted for inflation.
The feeling among investors back then was the same as it is today... After a great bull market in the 1960s, they experienced eight years of nothing. The last two years of "nothing" ('73 and '74) were particularly terrible.
Times feel terrible today, too. And the feeling is the same today as it was in the 1970s... The economy is not going to get better tomorrow.
But both history... and Warren Buffett... tell us that now is exactly when you need to be bold and buy stocks.
While I can't say I feel like an oversexed man in a harem, I do believe now is the time to invest and get rich...
Good investing,
Steve
Editor's note: Steve Sjuggerud is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.
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GET READY TO READ AWFUL THINGS ABOUT REAL ESTATE
On July 16, 2007, we ran an essay called "Commercial Real Estate is Starting to Crack."
We argued that real estate was expensive... It was offering tiny yields to reward investors... And most importantly, real estate share prices were turning down, so the trend favored a bearish bet. But we didn't think we'd see the collapse shown by today's chart.
Today's chart is the past two years of the iShares Real Estate ETF. This fund consists of America's largest owners of shopping malls, office buildings, warehouses, and apartment buildings. It's down 63% from its 2007 high ... and down 44% in the last month.
The stock market is a giant prediction machine. What happens to stock prices today shows up in earnings releases and headlines six months from now. As you can see, the market is saying, "Get ready to read awful things about commercial real estate. Really awful things"
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Manhattan office rents will fall by about 25 percent between now and mid-2010, according to a Colliers ABR forecast, as the city sheds tens of thousands of jobs in a financial industry-led recession.
"The next 12 to 24 months will be a struggle for the NYC commercial real estate market," wrote Robert Sammons, managing director for research at the New York-based real estate brokerage, in a report released [Monday]. "While we are bullish on the city and the region in the long-term, like the rest of the country we will have to buckle down for some time."
Sammons cited projections by the New York City comptroller's office of 165,000 private sector job losses through the end of 2010, up from a forecast of 85,000 job losses in July. About 35,000 of those may be in financial services, comptroller William Thompson Jr. said on Oct. 15.
Three of the five biggest New York-based investment banks, Bear Stearns Cos., Lehman Brothers Holdings Inc. and Merrill Lynch & Co. have either gone bankrupt or are being taken over, as losses on residential mortgage securities have taken their toll.
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Economists are hedging their bets that the Federal Reserve is going to announce a quarter or half point rate cut to 1 percent when it meets Oct. 28-29. Brian Bethune even thinks the Fed won't stop there and will cut rates even lower.
"The problem the Fed has now is the deflationary genie is out of the bottle," the chief U.S. economist at Global Insight, told CNBC.
Rich Yamarone, director of economic research at Argus Research, agrees that a rate cut is probable.
"Everyone at the Fed has pretty much told you they're going to cut. They're in a kitchen sink mode right now. Rate cuts, fiscal stimulus, bailouts, they're throwing everything they can at this right now," he told CNN.
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