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Oct 17, 2008

Warren Buffett: Buy Stocks! Cash Is Trash!

Posted Oct 17, 2008 10:42am EDT by Aaron Task 

"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."

Or so declared Warren Buffett Friday in an extraordinary op-ed piece in The New York Times. Buffett's call to stocks amid an ongoing financial crisis could help restore investor confidence, a crucial ingredient so far missing from the government's turnaround effort.

Buffett's message is akin to then-Merrill chairman William Schreyer buying TV time right after the 1987 crash to declare Merrill as being "bullish on America," recalls Dan Colarusso, managing editor of Portfolio.com.

The op-ed also recalls Buffett's own famous "buy stocks and get rich"comment to Forbes in 1974.

Buffett's optimism is based primarily on the following:

  • "Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors."
  • Cash is trash. "Today people who hold cash equivalents feel comfortable," he writes. "They shouldn't. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value."

A few caveats to Buffett's dramatic call:

  • By his own admission, Buffett is making a long-term call. "I can't predict the short-term movements of the stock market," he writes. "I haven't the faintest idea as to whether stocks will be higher or lower a month -- or a year -- from now.
  • In the short- to intermediate-term, there's still the issue of reviving the banking sector, and key bank CEOs like JPMorgan's Jamie Dimon have expressed little optimism for the Treasury's program of capital injection.
  • Nobody, not even Warren Buffett, is always right.

Google’s Net (and Stock) Rise Sharply

Published: October 16, 2008

SAN FRANCISCO — For months, Google has promised investors that the company’s online advertising system would do relatively well in an economic downturn. On Thursday, it showed evidence that it may be able to deliver on that promise.

Chester Higgins Jr./The New York Times

In a sign of Google’s push into display ads, David Rosenblatt, the former chief executive of DoubleClick, was named president of global display advertising, a new position.

Google said that its growth rate continued to slow in the third quarter. But the company fared better than Wall Street expected as it reported a solid 26 percent jump in net income to $1.35 billion, or $4.24 a share, from $1.07 billion in the third quarter of 2007. The company’s results were bolstered by strong gains in online advertising and efforts by Google to slow hiring and rein in costs.

Google’s shares, which rose to $353.02, or 4 percent, in regular trading on Thursday, jumped another 10 percent after the company reported its financial results. However, they remain down sharply from their high of just over $740 last November.

Google’s chief executive, Eric E. Schmidt, said the results reflected marketers’ acceptance of a system that is better and more measurable than other forms of advertising. He said that while the economic environment was unpredictable, Google was poised to continue doing relatively well.

“We are very realistic about the macroeconomic climate, but we are optimistic about Google’s future,” Mr. Schmidt said during a conference call with analysts.

While Google is the largest seller of online ads, its relatively strong results are not indicative of the overall health of the Internet advertising business. Google relies primarily on search ads, the fastest-growing segment of the market. Since marketers use such ads to lure people to their Web sites, analysts say they believe they are among the last thing advertisers would cut during a recession...

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