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On This Day - 5 FEBRUARY 2009
The secret behind Warren Buffett's optimism
In this issue:
Buffett believes that if the percentage relationship between market value of US stocks and its GNP falls between 70% and 80%, then buying stocks is likely to work out very well for investors. In late January, the percentage had touched the 75% mark, thus pointing towards high odds of attractive returns in stock market based on Buffett's metric.
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It should be noted that in the aftermath of the event that sowed the seeds of the last bull-run, the ratio stood at 133%. This could be an indication that an even bigger bull run is staring us in the face. For all the things that Buffett is known for, we are quite sure that none of those things pertain to taking broad market based calls. He has done it very sparingly indeed, although the success ratio has been higher than even the most adept economists can boast of.
His last call had come only a few months ago when he wrote an op-ed for the New York Times stating that stocks have begun looking attractive and if they continue to fall further, he will move to 100% equities in his personal portfolio.
Joel Stern, co founder of Stern Stewart and Co., the firm that has devised the value measuring metric, spoke to one of India's leading business dailies on a wide variety of things. And when the topic of JLR acquisition came up, he had the following to say, "The Tatas' timing wasn't great. But there's always tomorrow. As long, as they have enough equity to carry through into two-three years from now then the Tata-JLR deal would be fine. Plus it was a distressed price. He paid almost nothing for it."
Mr. Stern even went to add that while someone in Ford (the erstwhile owner of JLR) had lost his mind, Tatas have turned out to be smart. Words that will no doubt give the men running the beleaguered company a huge shot in the arm.
Not to be deterred, foreign firms themselves are strengthening their presence in the US and hiring staff from there. These firms are also lining up to be doled out a slice of the stimulus pie. In the longer interests of the US, it does not make sense for the country to resort to protectionist measures which besides sparking trade wars does also not bode well given that the financial crisis has nearly engulfed many countries across continents.
In fact, at a time when the unemployment rate in the US has surged to 7.2%, if foreign firms are expanding operations in the US and hiring people from there, so much the better for the country.
Crude oil in the meanwhile, traded little changed from its previous closing as OPEC production cut impact canceled out higher inventory reports in the US and weak demand.
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