Buy American. I Am By Warren E. Buffett

The financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be
scary.

So ... I've been buying American stocks. This is my personal account I'm talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy. ) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are
right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation's many sound companies make no sense. These businesses will
indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from
now.

Let me be clear on one point: I can't predict the short-term movements of the stock market. I haven't the faintest idea as to whether stocks will be higher or lower a month - or a year - from now. What is likely, however, is that the market will move higher, perhaps substantially so,
well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

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.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn't. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis
will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In
waiting for the comfort of good news, they are ignoring Wayne Gretzky's advice: "I skate to where the puck is going to be, not to where it has been."

I don't like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I'll follow the lead of a restaurant that opened in an empty bank building and then advertised: "Put your mouth where your money was."
Today my money and my mouth both say equities.

A version of this article appeared in print on October 17, 2008, on page A33 of the New York edition.


By Rita Pardede

StockCharts : The Three Stages of Primary Bull Markets and Bear Markets

Bull Markets

Primary Bull Market - Stage 1 - Accumulation
In the first stage of a bull market, stocks begin to find a bottom andquietly firm up. When the market starts to rise, there is widespreaddisbelief that a bull market has begun.

Primary Bull Market - Stage 2 - Big Move
The second stage of a primary bull market is usually the longest, andsees the largest advance in prices. It is a period marked by improvingbusiness conditions and increased valuations in stocks. Earnings beginto rise again and confidence starts to mend. This is considered theeasiest stage to make money as participation is broad and the trendfollowers begin to participate.

Primary Bull Market - Stage 3 - Excess
The third stage of a primary bull market is marked by excessivespeculation and the appearance of inflationary pressures.

Bear Markets

Primary Bear Market - Stage 1 - Distribution
Just as accumulation is the hallmark of the first stage of a primarybull market, distribution marks the beginning of a bear market. As the"smart money" begins to realize that business conditions are not quiteas good as once thought, they start to sell stocks. The public isstill involved in the market at this stage and become willing buyers.There is little in the headlines to indicate a bear market is at handand general business conditions remain good. However, stocks begin tolose a bit of their luster and the decline begins to take hold.

Primary Bear Market - Stage 2 - Big Move
As with the primary bull market, stage two of a primary bear marketprovides the largest move. This is when the trend has been identifiedas down and business conditions begin to deteriorate. Earningsestimates are reduced, shortfalls occur, profit margins shrink andrevenues fall. As business conditions worsen, the sell-off continues.

Primary Bear Market - Stage 3 - Despair
At the top of a primary bull market, hope springs eternal and excessis the order of the day. By the final stage of a bear market, all hopeis lost and stocks are frowned upon. Valuations are low, but theselling continues as participants seek to sell no matter what. Thenews from corporate America is bad, the economic outlook bleak and nota buyer is to be found. The market will continue to decline until allthe bad news is fully priced into stocks.

Once stocks fully reflectthe worst possible outcome, the cycle begins again.

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