Why Warren Buffett is optimistic
I wanted to share some thoughts on today’s economic outlook, looking beyond the headlines to bring you up to speed on the stock markets.
Markets in the last three months saw a continuation of the roller-coaster-like turbulence of the past couple of years.
After a strong first quarter and a big pullback in the second quarter, July saw a strong recovery in global markets.
This was followed by weak performance in August, and September (historically a troublesome month for markets) actually saw a nice bounce back.
The importance of a balanced perspective
One of the keys to success for investors is maintaining emotional equilibrium, preventing the highs from being too high and the lows from being too low.
Today, many Americans are pessimistic about the United States and global economies…. Their mood is driven by daunting headlines about slow economic growth, depressed housing prices, high unemployment, and deficit problems in the U.S. and Europe—not to mention political discord in Washington.
This pessimism is amplified by the media coverage given to voices of gloom such as Nouriel Roubini. As a result, it’s easy to miss some of the good news beyond the headlines.
The Big Sky Conference: Looking past short-term issues
That’s why a conference that took place in mid-September is important. Speaking to 2,000 business and political leaders at the Big Sky Conference in Montana, Warren Buffett, Microsoft’s Steve Balmer, and GE’s Jeff Immelt provided a different perspective on the mid- and long-term positives for the United States and global economies.
- “I’m a huge bull on this country…we won’t have a double-dip recession. I see our businesses coming back almost across the board… It’s night and day from a year ago.”
- “I’ve seen sentiment turn sour in the last three months or so, generally in the media. I don’t see that in our businesses. I see we’re employing more people than a month ago, two months ago.”
- “The things that worked for the country through a century of two world wars, a depression and more—all while increasing the standard of living—will work again.”
Steve Ballmer, Microsoft
- “There soon will be more technological advancement and invention than there was during the Internet era, and that will help drive business growth.”
- “I am very enthusiastic what the future holds for our industry and what our industry will mean for growth in other industries.”
- “We will see new technologies that move beyond the Internet to tie together computers, phones, televisions, and data centers to create amazing new products. And the pace of innovation will increase as technology makes workers more productive.”
Jeff Immelt, GE
- “Angry political rhetoric is not helpful, and headlines are too focused on finding negative indicators.”
- “Business at GE is improving. Signs across the world show growth improving, as evidenced by a rise in GE’s orders.”
- “GE is now finding it profitable to build manufacturing and service centers in the United States rather than overseas, because it is more competitive to do so.”
The path ahead
It’s of note that these positive and under-reported views are supported by recent research from McKinsey & Company, today’s leading strategy consulting firm and the first place many Fortune 500 CEOs look for advice.
McKinsey surveyed 2000 executives around the world in early September.
- Almost 60% said their country’s economy is in recovery.
- Most expect profits to rise from last year.
- And nearly 40% expect to hire employees by the end of 2010.
It’s not realistic to suggest there won’t be challenges ahead, both for economies and stock markets across the globe. And given fragile market psychology, it’s entirely possible that we’ll see a market correction in the next 12 months.
At the same time, it’s my job to look at a broad range of credible points of view, not just those who shout the loudest or take the most extreme positions. And in doing that, I have concluded that it’s important to pay attention to the encouraging perspectives from business leaders on the front lines.
Given the likely rise in profits reflected in the comments from Warren Buffett, Steve Ballmer, and Jeff Immelt, and by the McKinsey research, I believe today’s pessimism is overdone and I remain positive on the long-term outlook for the global economy. If you would like to take a look at your personal situation in light of today’s economy drop me a line or give me a call!