What's Behind Buffett's Call to Buy?

by: Larry MacDonald November 22, 2008 | about stocks: BRK.A / BRK.B    
Larry MacDonald

Larry MacDonald

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Editor's note 11/24/08: This is an updated version of an article that originally was published on 11/22

Buffett is 78. Why is he switching to 100% stocks from 100% government bonds in his personal account? As financial planners and advisers say repeatedly, stocks are for the long run. Only young people should have everything in stocks; someone close to 80 years old should have about 80% of their assets in bonds and other conservative assets.

Buffett wrote a New York Times article explaining his reasons for buying stocks. It has his usual clearheaded explanation for why now is a good time to buy stocks. Everyone is fearful so it’s time to be greedy. But there wasn’t any explanation why he was ignoring a basic precept of financial planning.

Is he buying out of force of habit? Markets are down, so he buys stocks just like he always has for half a century? Could it be the emperor himself doesn’t have any clothes on?

More likely there are some caveats to the conventional approach to portfolio management over the lifecycle. Maybe an all-stock portfolio is OK for a 78 year old when they have a modest lifestyle and a nest egg large enough to live for decades off dividends and draw downs of principal regardless of market conditions? Or maybe his personal estate is to be passed on to his beneficiaries with the stipulation that it be disbursed in stages over the long run?

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