Could Buffett Be Wrong About Stocks?

Warren Buffett is one of the most famous investors throughout the world, and he’s also very bullish on stocks once again. The market is currently reaching and breaking highs that it hasn’t seen since the crash in 2008. That makes it very difficult not to feel good about your investment accounts and your 401(k) again. During a recent interview with CNBC, Buffett said, “If you’re asking me if stocks are cheaper than other forms of investment, in my view the answer is yes. We’re buying stocks now. But not because we expect them to go up. We’re buying them because we think we’re getting good value for them.”

Even though the market is at an all-time high, Warren Buffett is giving the world the “all clear” sign and saying it’s fine to dive back into the equity markets. Should you do so and follow Warren Buffett’s advice, or steer clear of them for now? After all, Warren Buffett is considered one of the most intelligent investors of all time, so why not follow his guidance and lead?

Well, here’s a few reasons why he could certainly be wrong:

Is It Wise for Warren Buffett to Ignore His Own Advice?

From time to time, Warren Buffett will really offer some incredible advice. One of his best forms of advice is, “Be fearful when others are greedy, and greedy when others are fearful.” That means not following the herd will give you a better chance at success. There’s no question that the current market rally is squarely held upon the shoulders of the greedy heard. Should you really follow Buffett’s advice in this instance? Shouldn’t Buffett follow his own advice? He might want to exercise a little bit more fear in his thinking.

Should You Buy and Hope for a Miracle… Again?

If you’re like many rational investors in this day and age, the current rise in the market is awfully reminiscent of the 2007 rise in the stock market and real estate markets. You know, right before they came crashing down. Don’t get me wrong. There’s no guarantee that a crash is imminent. But it might be in your best interest to hold off on the stock buying at this time.

Remember, Warren Buffett is an entirely different animal than you and I. He can make business deals that only you and I would normally dream of. He has a significantly different investment strategy for his company Berkshire Hathaway. It has to be different, because he deals with billions of dollars and you don’t. Berkshire doesn’t need the money quite frankly. If it takes 50 years for an investment to pan out, then so be it. You on the other hand will need your money for retirement, income, and many other needs.

It’s a lot different to plan for an institution than it is to plan for an individual person. As I said, Berkshire can hold onto stocks for decades. So they can buy and hope for the best. If you are able to buy a stock and hold it forever then this is a good strategy, but if you live in the real world, then this might not be the best move to make. It’s easy to buy a stock. The difficult part is selling it.

There’s no question that it’s a good idea to have stocks in your portfolio, but do so with prudence. The “Prudent Investor Rule of Thumb” will provide you with a starting point. Start with the number 100 and subtract your age, and what you have left is what you should have in stocks. If you are 65 years old, then only 35% to your portfolio should consist of stocks.

The Investing World Is More Than Two-Dimensional

Buffett argues that stocks are a great investment right now based on the assumption that only stocks and bonds are available. While on CNBC, he mentioned that stocks are not “as cheap as they were four years ago” but “you get more for your money” when you compare them to other investments, and that, “the dumbest investment, in my view, is a long-term government bond.” I agree with Buffett’s disdain for government bonds, but it implies that the world of investing has only two dimensions, yet this just isn’t true.

Go beyond Stocks and Bonds

if you are a smart investor, it may be wise to do something other than follow Warren Buffett’s advice in this case. There’s no question that money managers and investors need to have an allocation to purchase equities, but do so prudently, and avoid acting reckless in this endeavor. Keep stocks and bonds in mind while you approach your investment strategy. Make sure you are truly diversified, and even consider real estate investing as an option. There are many ways to hedge your bets as an investor, and you need to look into all of them.

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