"The Sky Is Falling!"


Jun 6, 2012

Written by Mary Buffett

Any of you who are familiar with my work know that I like to keep things simple.  One of the most wise – and predictive – pieces of advice that Warren Buffett gives is, “Be greedy when others are fearful; be fearful when others are greedy.”  And I think there’s a whole lot of fear right now.

Heard about Greece?  Spain? China?  It sounds like the end is near.

Let’s take a look at what is really going on, and you can decide for yourself.  Europe is about 16% of our total exports, and accounts for about 2% of our Gross Domestic Product.  So, if all European countries completely stop ordering ANYTHING from us, our GDP growth will fall from 1.9% to 1.862%.  Do you actually think every country in Europe will completely stop ordering anything from us?  Neither do I.  But even if they did, it looks like the sky may not actually fall.

And China.  Exports to China account for 1% of our GDP growth.  So, if China goes to hell in a handbasket and completely stops ordering ANYTHING from us AND all of Europe completely stops ordering anything from us, our GDP growth will fall from 1.9% to 1.843%.  You and I both know that’s not going to happen.  But if it did, the effect would be manageable.

My point is that all the bad news is “priced in” to the stock market.  Most people assume the sky will fall.

So, some girls with a ten year minimum investment horizon just may think, “Hmmm.  With the price per share of the stock market at 21% less than its average, and the assumption that Europe and China will completely stop ordering anything from us, maybe this is what Warren meant by fearful.”  Maybe everything won’t come to a complete stop.  Maybe the sky will not fall.

Brilliant emerging market investor and strategist Dr. Mark Mobius just might be right in his prediction that the European debt crisis may not as deep and terrible as people think, and that European Union nations are in the process of time consuming negotiations that won’t be settled in the next ten minutes.

For optimistic girls like us, this just may just be a good time to start being greedy.

Until next time…

Mary Buffett

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