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When were the times Buffett "market timed?"


stahleyp
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The only times I can think of was when he closed down his partnership in the late 1960s and then he wrote in Oct 2008 that he "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."

 

Does anyone else know of any times Buffett has been out of stocks (more or less completely)?

 

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This is my opinion only. I think he market-timed all throughout his LLC. The evidence is when he states that some of his investments would perform better in market downturns. As they did. This suggests market conditions influenced his purchases to some degree. Or at least, had some consideration on his decision-making.

 

That, as opposed to what he has been broadcasting the last couple of decades that it doesn't matter when you purchase as long as you have concluded there is value to be had.

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I always wonder how much is timing and how much is pricing. Pricing to a high margin of safety often produces results that look like market timing.

 

The partnership had three broad categories. General undervalued which may well be prone to market swings, control positions where Buffett could encourage the Board to distribute excess capital promptly returning value even in down markets, arbitrage which is largely immune to market swings.

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The only times I can think of was when he closed down his partnership in the late 1960s and then he wrote in Oct 2008 that he "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."

 

Does anyone else know of any times Buffett has been out of stocks (more or less completely)?

 

Paul, Why are you asking... Has he indicated he is out of stocks right now? 

 

To answer your question he has always market timed, IMO.  The late 60s you mention; early/mid 70s when he was buying everything in sight; and 2008/09 are the most obvious.  By its nature,  value investing is market timing for the most part. 

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I always wonder how much is timing and how much is pricing. Pricing to a high margin of safety often produces results that look like market timing.

 

The partnership had three broad categories. General undervalued which may well be prone to market swings, control positions where Buffett could encourage the Board to distribute excess capital promptly returning value even in down markets, arbitrage which is largely immune to market swings.

 

+1  It is all about price.

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By its nature,  value investing is market timing for the most part.

Agree. Not just price. If "only price" were true you could sit on an investment for years w/o showing Buffett's 20+% returns. Have seen this first-hand waiting on cigar puffs to yield large gains. Prior to, there were many years of zero yield crops. Shouldn't a value investor try to assess which catalyst will catapult price? And once established, shouldn't the "when" question follow?
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This sounds a bit like market timing. From chapter 28 (Dry Tinder) of The Snowball:

 

"The conflict he was beginning to feel was a struggle to find investments for the partnership. He had managed to find some of the few undervalued stocks that still paraded through the Standard & Poor’s weekly report: Employers Reinsurance, F. W. Woolworth, and First Lincoln Financial. He’d also bought some stock in Disney after meeting Walt Disney and seeing the entertainment showman’s singular focus, his love of his work, and the way these had translated into a priceless catalog of entertainment. But the concept of “great businesses” had not entirely sunk in, and he didn’t load up. Instead, he bought more Berkshire, and built a $7 million “short” position in stocks like Alcoa, Montgomery Ward, Travelers Insurance, and Caterpillar Tractor—borrowing the shares and selling them against the risk that the market would plunge."

 

And the footnote that goes with it: "Buffett and his chief administrative officer John Harding chose a set of representative large-cap stocks, in effect creating a market index. Buffett did not want to execute the trade through a brokerage firm because the broker kept the proceeds from the sale and paid no interest to him. Harding contacted university endowment funds. Buffett went personally to Chicago to get shares. The idea of lending directly to a short-seller was so novel at the time that most universities passed. However, Harding was able to borrow about $4.6 million of stock."

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By its nature,  value investing is market timing for the most part.

Agree. Not just price. If "only price" were true you could sit on an investment for years w/o showing Buffett's 20+% returns. Have seen this first-hand waiting on cigar puffs to yield large gains. Prior to, there were many years of zero yield crops. Shouldn't a value investor try to assess which catalyst will catapult price? And once established, shouldn't the "when" question follow?

 

Cigar butts often aren't growing intrinsic value.  Thus the discount is deceptive.  Looking for a catalyst in a stock, or becoming it in Sandborn Maps, is not market timing.  Market timing is basing your decision to buy based on overall market valuation and/or direction.       

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By its nature,  value investing is market timing for the most part.

Agree. Not just price. If "only price" were true you could sit on an investment for years w/o showing Buffett's 20+% returns. Have seen this first-hand waiting on cigar puffs to yield large gains. Prior to, there were many years of zero yield crops. Shouldn't a value investor try to assess which catalyst will catapult price? And once established, shouldn't the "when" question follow?

 

Cigar butts often aren't growing intrinsic value.  Thus the discount is deceptive.  Looking for a catalyst in a stock, or becoming it in Sandborn Maps, is not market timing.  Market timing is basing your decision to buy based on overall market valuation and/or direction.     

Thank you for that clarification.
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Thanks all. I seem to remember him saying that one should only be out of stocks a few times in one's career (though that isn't verbatim and I could not be remembering it correctly). If someone is 100% in bonds (for an equity investor), I don't see how that isn't market timing. There were stocks that did well in 2008 - Fairfax for example.

 

Al, he hasn't said anything like that to my knowledge. It's more for trying to understand why he's done it in the past.

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