Warren Buffett says wartime is a bad time to be holding cash. Photo: Bloomberg
US markets closed lower overnight, with the benchmark S&P 500 down 0.74 per cent. That may have something to do with the fact that Russian soldiers have boots on the ground on Ukrainian soil in what appears to be a volatile, unpredictable situation. The Russian rouble fell to a record low against the dollar today and the RTS Cash Index of Russian stocks was down sharply.
These are the sort of headlines that can cause many investors to act rashly and in a manner contrary to their long-term interests.
Taking a deep breath
Thankfully, Berkshire Hathaway CEO Warren Buffett offered some much-needed perspective from someone who bought his first stock in 1942 (“I will tell you the macro factors were not looking good!”).
Unruffled by the news out of Ukraine, Buffett is actually buying a stock this morning – and he likes it better today than he did on Friday:
“When I got up this morning, I actually looked at a stock on the computer that trades in London that we’re buying and it’s down and I felt good. … It was an English stock. … I had a price limit on it and we were buying it on Friday, but it’s cheaper this morning and that’s good news,” Buffett said on US cable channel CNBC overnight.
What about war?
What of the potential threat of World War III or a return to the Cold War, countered CNBC’s Becky Quick?
Buffett responded: “If you tell me all of that’s going to happen, I will still be buying the stock. You’re going to invest your money in something over time. The one thing you can be quite sure of is if we went into some very major war, the value of money would go down – that’s happened in virtually every war that I’m aware of. The last thing you’d want to do is hold money during a war.”
The ‘safety’ of cash
So if you don’t want to hold cash, what do you want to own?
“You might want to own a farm, you might want to own an apartment house, you might want to own securities.
“During World War II, the stock market advanced — the stock market is going to advance over time. American businesses are going to be worth more money, dollars are going to be worth less, so that money won’t buy you quite as much
“But you’re going to be a lot better off owning productive assets over the next 50 years, than you will be owning pieces of paper.”
Foolish takeaway
The farm analogy is one Buffett warmed to in his recently released letter to Berkshire Hathaway shareholders. He was warning against exactly the sort of short-termism that is now gripping investors in the face of possible trouble in Ukraine:
“Forming macro opinions or listening to the macro or market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important”
Oh, and before you are tempted to think ‘yes, but it’s different this time’, that comment comes out every time.
And the result? It rarely – if ever – is
Alex Dumortier is a Motley Fool columnist. You can follow The Motley Fool on Twitter @TheMotleyFoolAu. The Motley Fool’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691).
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