The New Warren Buffett Trade Is Already Making Money
"I never really buy businesses based on macro factors," he said.
But he did note that he was buying on the recent dip in the markets.
"We were buying it on Friday, but it's cheaper this morning and that's good news," he said.
And even before Monday's sell-off, CNBC asked Buffett if he'd be buying stocks that day if markets fell.
"Absolutely," he said.
One day later, the S&P 500 is surging to new all-time highs, which means the new Warren Buffett-trade is already making money.
"Forming macro opinions or listening to the macro or market predictions of others is a waste of time," said Buffett as he bulleted the fundamentals of investing in his new letter. "Indeed, it is dangerous because it may blur your vision of the facts that are truly important. (When I hear TV commentators glibly opine on what the market will do next, I am reminded of Mickey Mantle's scathing comment: "You don't know how easy this game is until you get into that broadcasting booth.")"
Buffett presented his "fundamentals" based on the lessons he learned from two past real estate investments.
"My two purchases were made in 1986 and 1993," he said. "What the economy, interest rates, or the stock market might do in the years immediately following - 1987 and 1994 - was of no importance to me in making those investments. I can't remember what the headlines or pundits were saying at the time. Whatever the chatter, corn would keep growing in Nebraska and students would flock to NYU."
These are not new insights from the Oracle of Omaha. In his 2008 op-ed for the New York Times, which he wrote during the height of the financial crisis, Buffett reminded us that the markets always seem to rally out of bad events. From his piece:
A little history here: 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. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. 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. 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. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
To be fair, it's probably unfair to characterize Buffett's call on Monday as a trade. Buffett invests for the long-run, and everything he says speaks to this. If anything, he'd probably attribute the good timing to luck.