Great Investment Articles

By WARREN E. BUFFETT
Omaha

THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

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. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.

Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.

By Carole Vaporean

NEW YORK (Reuters) - As marginal zinc mines begin to shut down in the surplus environment projected for the Western World, prices will firm again, likely in the next year to 22 months, according to Canadian mining giant Teck Cominco Ltd. (TCKb.TO: Quote, Profile, Research) Chief Executive Don Lindsay on Tuesday.

"Zinc will go back up, it's a question of when," Lindsay told the Reuters Global Mining Summit in New York.

"If you roll the clock forward to December of 2009 -- 21 months away -- at that point, plus or minus six months, a number of mines start to shut down. And the Western World becomes quite tight," said the CEO of the world's second biggest zinc miner.

Western World is a term in mining circles that usually refers to all areas of the world except China.

The two key factors he said he was focused on were tighter supplies of Western World zinc because of mine shutdowns in a more difficult market and the possible imposition of an export tax on China's super-high-grade zinc.

Referring to Teck's own zinc mine portfolio, Lindsay said it has two marginal zinc mines currently under review for possible closure. Both lost money last quarter.

"I don't want to do that much longer," he said.

In addition, the executive surmises that an analyst's review of zinc mines would find about 10 Western World mines that might shut in the next couple of years.

"It hasn't occurred yet and we think when it does in combination with when China's position on export taxes gets clarified, those two factors will drive zinc much higher. But when that occurs we don't know," he said.

The London Metal Exchange MZN3 zinc price has fallen from its $4,600 per tonne all-time high in December 2006 to $2,580 a tonne at Monday's close.

"As the zinc price is down, by more than 50 percent, that makes a big difference," said Lindsay.

"We are reviewing those (marginal) operations and we might re-engineer them to shorten the mine life," he said, adding that the review might take several months.

If Teck Cominco shuts its two mines and Xstrata's (XTA.L: Quote, Profile, Research) large Brunswick mine in eastern Canada closes, Lindsay said those three operations alone would add up to 350,000 tonnes.

"There goes your surplus and you're into a deficit. Then all hedge funds would be playing zinc again," he said.

"We could end up having less zinc production two years from now. Which makes the market tighter and the price higher. So we'll probably make more money with less zinc production."

Xstrata's Brunswick mine, which in 2006 produced 272,000 tonnes of contained zinc, is the world's fourth largest and is projected to run out of reserves in 2010.

Lindsay said a survey of the top 10 zinc analysts are generally calling for a zinc surplus in 2008 and 2009 ranging from about 200,000 to 600,000 tonnes.

"If you see many more production disruptions there won't be a surplus in zinc. It doesn't take much to eliminate a 200,000 tonne deficit," he said.

He said the market produced 11.3 million tonnes in 2007.

On the positive side, he pointed out that LME zinc inventories have fallen to about 125,000 tonnes currently from over 700,000 to 800,000 tonnes 3 years.

The other key question is whether China chooses to impose a much anticipated tax on super-high-grade zinc exports, which would crimp supplies. China is one of the world's top miners.

"If they do do that, and China becomes a zero sum game relative to the Western World, it won't be that long before zinc becomes very tight again," said Lindsay.

Lindsay said he expects Teck Cominco's operating income this year to be close to its $1.18 billion made last year.