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What Did Warren Buffett Really Say?

by Ouida on March 11, 2010

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In a October 2008 NY Times Op Ed piece Warren Buffett wrote the article Buy American. I Am.
His article was touted as an unqualified endorsement of the stock market for average people. Mr. Buffett did say that he was buying American with his private portfolio and repeated his basic philosophy to be greedy when others are fearful and fearful when others are greedy. But there are two key things that Mr. Buffett did not say and as an individual investor with a 401K who is planning for retirement, these omissions are critically important.
Mr. Buffett did not say he was buying index funds or actively-managed mutual funds. He did say that he was buying sound companies at attractive prices. In short Mr. Buffett is financially literate and understands how to value companies and how to buy them.
Mr. Buffett did not say that he was investing to live on the proceeds in retirement. In fact it is pretty clear from the article, his time horizon is infinite. While the near term may appear uncertain he feels that there will be stock appreciation due to earnings growth over the next 5, 10, or 20 years. Mr. Buffett was 78 when he wrote the Op Ed piece and is looking at what he feels the long term appreciation of the markets will be to guide his investment decisions today. In other words he is not looking at the risk inherent in any portfolio in which the owner will need to make withdrawals for income. In fact, I would guess that his personal holdings are not in a tax-deferred vehicle at all. Mr. Buffett is a prudent investor with a sound buy and hold strategy who is disciplined enough to keep his turn-over and his capital gains at a minimum. It would not make any sense for him to hold individual stocks in a vehicle that would require that he begin to sell holdings at age 70 and a half as IRAs and 401Ks do. The vast majority of individuals who read that letter are people who invest in the markets through a tax-deferred or tax-advantaged vehicle like a 401K or the Roth IRA and are worried about creating sufficient income to live on in retirement.

In retirement, I’m more worried about cashflow than where I believe the Dow will be in 20 years. I have just a hand full of ways to create that cashflow: I can invest in the market the way most Americans do and hope that when I need the money, my account has sufficient value to generate the cashflow I need. I can start businesses that create cashflow or I can do a combination of both.

What do you see yourself doing to create the retirement you want? Please comment.

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