Warren Buffett Is Not Fearful

The Motley Fool

Seems like the bull chorus for FTSE 7,000 has just welcomed some new members.

This time it's the boffins at UBS that have ordered the paper hats and party poppers.

According to the Telegraph, the investment bank's strategy experts reckon the blue-chip index will finish 2014 at 7,400.

Apparently, the world's "ultra-accommodative" central bankers are "taking every opportunity to convince the market that there is still plenty of spare capacity and that [monetary] policy will not smother the nascent economic recovery".

In other words...

No taper. No rate rises. No bubble. Keep dancing.

In fact, we could be on for a further 11% market rally during the next 13 months if the pointy-heads at UBS are right.

Which follows the stupendous 100% index surge since the banking-crash lows of March 2009.

So maybe, just maybe...

  • the FTSE 100's all-time of 6,930 could soon be trounced;

  • Martin Walker of Invesco Perpetual could actually be on the money and we really could see FTSE 10,000 in our lifetimes, and;

  • Now could be the exact time to load up on stocks before Johnny Latecomer and Tailend Charlie join the party and take the market to tremendous heights.

I've missed some bumper bagtastic bargains in this buoyant market

Speaking of parties and tremendous heights, check out these winners from the last twelve months:

  • Thomas Cook +623%

  • Ocado +488%

  • Blur +431%

  • Thorntons +277%

  • Xaar +269%

I bet tracker investors thought they were doing well with the FTSE 100 index up 17% in that time.

Hold on - I thought I was doing well with some of my small-cap punts rocketing 'just' 50% in that time!

But clearly I've missed some bumper bagtastic bargains in this buoyant market.

Indeed, if I could just compound my portfolio with a Thomas Cook or an Ocado every so often, I'd have enough money to...

...pay off the mortgage, enjoy an early retirement, put my son through university, bankroll my wife's beauty business and afford a week at Center Parcs in the summer holidays...

...and of course never have to worry about the recession, the pensions crisis, the housing bubble, 17 years of rising fuel bills, all those dire warnings about Britain going bankrupt and the next time those crazy American politicians put us on the brink of the FINANCIAL APOCALYPSE.

It could just as easily reflect tulip bulbs between 1634 and 1638 and the South Sea company between 1718 and 1722

Still, there'll always be doom-mongers wanting to scare you from this positive market into cash, gold, rifles and tinned beans.

After all, they do say that what goes up must come down.

And you know what? They're right.

Markets do not always rise in a straight line.

Just take a look at the following chart.


I'm guessing the chart is based on the performance of the Nasdaq between 1995 and 2002.

But it could just as easily reflect tulip bulbs between 1634 and 1638, the South Sea company between 1718 and 1722, the Dow Jones during the 1920s, the Nikkei during the 1980s, gold between 2000 and ??? and bitcoin between 2013 and ???

Anyway, the chart shows how markets can take on a life of their own as prices are pushed higher and higher and higher.

Naturally the smart money gets in first when prices are low.

Then as the market picks up, the not-as-smart City institutions become confident and jump aboard.

And then the wider public - you know, Johnny Latecomer and Tailend Charlie - get involved and become far too excited and take prices to incredible peaks.

Until there are no buyers left that is, and the market has only one way to go.

So where are we now on that chart for the FTSE 100?

I reckon:

  • Take off started during 2009 when the market bottomed at 3,500, and continued throughout 2010 as the index approached 6,000;

  • First Sell off and Bear trap was 2011, when the FTSE dived from 6,000 to 5,000 after worries about Greece and the eurozone, and;

  • Now we're close to Media attention following the high demand for Royal Mail shares and the market's attempt this year to breach 7,000.

Certainly there is widespread Enthusiasm for many small-cap shares at the moment from seasoned investors.

However, I still do not see much Enthusiasm from the wider public for shares in general.

What's more, I simply do not see any widespread Greed, Delusion and New Paridigm!!! in the market right now...

...especially on the scale of late 1999, when once sensible investors pushed the FTSE 100 close to 7,000 as they predicted dotcoms could enjoy 80% operating margins and justify P/E multiples of 100 times plus.

He issued that warning just a few months before Black Monday

At manic times such as late 1999, it paid to heed the wise words of Warren Buffett:

"Be fearful when others are greedy, and be greedy when others are fearful."

He issued that warning just a few months before Black Monday, when global shares crashed 20% on an October day in 1987.

Times seem different now, not least because Mr Buffett is still buying.

Last week his Berkshire Hathaway conglomerate revealed its largest new holding since adding IBM in 2011.

Mr Buffett now has a $4bn stake in Exxon Mobil, which makes it one of his top-ten holdings.

Such major investments suggest Mr Buffett is not fearful of this market...

...and can't see much in the way of Greed, Delusion and New Paridigm!!! right now.

Simple conclusion? Keep dancing.

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