Warren Buffett Says "Buy American, I am!"

Warren Buffett wrote and Op-Ed piece in the New York Times last week. On first blush, it sounds good. See:

http://www.nytimes.com/2008/10/17/opinion/17buffett.html?em

To Quote Mr 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. If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities...."

Mr. Buffett goes on to say:
"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.”"

This sounds good, and Mr. Buffett did purchase a stake in GE to the tune of $3 Billion, and before that in Goldman Sachs. Unfortunately, his investment is not in the same common stock I would be purchasing if I were to "Buy American". Mr. Buffett is getting the best equity investment possible via preferred stock, and in the case of GE, is also getting a 10% annual dividend. GE can buy the stock back after three years, but only at a 10% premium. Mr. Buffett also gets warrants to buy GE common stock at any time during the next five years at $22.25 a share. Keep in mind that one year ago, GE common stock was selling for $40 a share. If the stock recovers, Mr. Buffett could double his return on top of the dividends he is getting paid.

However, I will get no such deal if I "Buy American". Something to keep in mind when reading Mr. Buffett's piece.

In fairness to Mr. Buffett, he is stating that stocks at the moment are "cheap". Deal or no deal, the price is right! He also says that "If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities."

Sounds good to me! In fact, when the market tanked, I stopped everything and made a list of stocks in various companies I want to own, and had not previously purchased as I felt the stock was overpriced. I have since used that list to purchase stock in one company; I do expect to purchase stock from the other companies on my list and perhaps for all of those on my list.