Buffett on Investors' Greatest Mistake

In a wide-ranging interview with CNBC, Warren Buffett says he thinks there is support for the huge gain in stocks we’ve seen over the past 10 months, and stresses that investors shouldn’t try to time the market.

“There has been a lot of things that have been cleaned up in the economy in the last 18 months,” Buffett says. “A lot of the toxic assets are in better shape. There are going to be 4.5 million homes or thereabouts sold in [this] year. … Of the 4.5 million homes that are sold, the people that are buying those are putting down reasonable down payments in many cases, buying much more cheaply, covering it better with their income, so the liars’ loans have just disappeared to a great extent, so every day those homes are going into better hands. … So the system is cleansing itself but it doesn’t do it in a day, a week, a month, or even a year.”

Buffett also discusses what he says is the greatest mistake investors make. “The idea that you try to time purchases based on what you think business is going to do in the next year or two, I think that’s the greatest mistake that investors make because it’s always uncertain,” he says. “People say it’s a time of uncertainty.   It was uncertain on September 10th, 2001, people just didn’t know it.   It’s uncertain every single day.   So take uncertainty as part of being involved in investment at all.”

“But,” Buffett added, “uncertainty can be your friend. I mean, when people are scared, they pay less for things. We try to price. We don’t try to time at all.”

Buffett also says that if he had a choice between holding cash or 30-year bonds or owning equities, “I wouldn’t hesitate for a second to own equities.” He also says investors shouldn’t base their decisions on what the economy will do in the short term. “I think markets frequently will diverge from the economy,” he says. “That’s why I think it’s a big mistake for people to start when they think about buying a stock, I think it’s a big mistake to start, to think about what’s going to happen in the next 12 months or the next six months either to the company or to the — or to the economy generally.   I do not — if I’m buying XYZ company I am not concerned about what they’re going to earn in the next year.  The next year is going to be over and then people are going to be looking at the year after that.  If I’m right about where they’re going to be in five or ten years we’ll make a lot of money but I can’t time stocks based on what they’re going to do this quarter and next quarter.”

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