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Quote of the Day

“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…Why? A simple rule dictates my buying: Be fearful with others are greedy, and be greedy when others are fearful.”

-Warren Buffett, in his Op-Ed published in the New York Times on October 17th 2008. See below in our “This Day in Stock Market History” for the article:

October 17th – This Day in Stock Market History

October 17th, 1975 – New York City comes within 2 hours of bankruptcy.

The city would owe $350 million, but had only a fraction of that available. Washington would fail to craft a bailout package, and the teacher’s union pension fund would initially refuse to buy more of the city’s bonds. It was estimated by some that 100 banks would fail if the city went bankrupt. A notice had been drafted and signed by the mayor:

NYC bankruptcy letter

But at the last minute, as creditors were lined up at government buildings and teachers were being notified to stay home, the teachers union would come to the rescue, giving the city the lifeline it needed to avoid default.

President Ford would slam New York City in a speech a few days later:

“What I cannot understand—and what nobody should condone—is the blatant attempt in some quarters to frighten the American people and their representatives in Congress into panicky support of patently bad policy. The people of this country will not be stampeded; they will not panic when a few desperate New York City officials and bankers try to scare New York’s mortgage payments out of them… I can tell you, and tell you now, that I am prepared to veto any bill that has as its purpose a federal bailout of New York City to prevent a default.”’

Which would result in the famous “Ford to City: Drop Dead” headline:

ford to city drop dead

You can read more on the story here: “The Night NYC Saved Itself” by the New Yorker.

October 17th, 2008 – Warren Buffett writes his “Buy American. I am” Op Ed in the New York Times.

Including our quote of the day at the top of the page, the piece contains a few now famous Buffett lines:

 “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.”

Quintessential Buffett. As the world was falling, Buffett remained calm and made some brilliant purchases. Also worth noting, Buffett’s big purchases in 2008 were early. 6+ months before the market truly bottomed. As many media outlets and pundits called Buffett’s rein over, those who invested with him and who had patience made out very well over the next several years.

Best October 17th in Dow Jones Industrial Average History

2002 – Up 2.97%, 239.01 points.

Worst October 17th in Dow Jones Industrial Average History

1930 – Down 4.70%, 9.25 points.

Read of the Day

Buffett also gave great commentary on the 2008 financial crisis in his 2008 shareholder letter. How did Buffett feel while writing the letter?

“…But neither Charlie Munger, my partner in running Berkshire, nor I can predict the winning and losing years in advance. (In our usual opinionated view, we don’t think anyone else can either.) We’re certain, for example, that the economy will be in shambles throughout 2009 – and, for that matter, probably well beyond – but that conclusion does not tell us whether the stock market will rise or fall.”

Buffett was optimistic, but realistic as well. He knew stocks were cheap, but offered no short term predictions for when the market would turn around.

The stock market would eventually turn around a few months later in march 2009.


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