Recession Looms: What Would Warren Buffett Do?

He's everywhere. Personal finance magazines. Investing web sites. Books. Television. This article. Everybody wants a piece of Warren Buffett. A little magic touch from the Oracle of Omaha. The guy walks on the waters of Wall Street. Just for the record, I'm pretty impressed with the man myself, but I can't help wondering why so many of the people who tout the "Warren Buffett Way" are all atwitter about the coming recession and the coming damage to many of our portfolios. Everywhere I turn, I see articles telling me how to best position my portfolio to avoid horrendous losses in the coming carnage.

Forgive me, but does anyone really believe that Warren Buffett is spending his days repositioning the Berkshire Hathaway portfolio to avoid a short term financial calamity? Do you think he stays awake at night thinking of new ways to recession-proof the portfolio? I've been reading about Warren Buffett since about 1975 or 1976. Back then you could have bought a share of Berkshire Hathaway for about 80 bucks. I could have, too. Did I? Hah! Did you? I didn't think so. Neither did I.

About 1983 or so, I had occasion to read some more about Warren Buffett and Berkshire Hathaway again. This time the cost of a share was about 800 bucks. Craz;y price to my younger, more inexperienced (stupid) self. Eight hundred dollars for a single share of stock? Are you out of your mind? Me? My thinking was the same as just about every other investing human's thinking at the time. I was waiting for the bottom to fall out from under the stock price. And therein lies one of the greatest differences between Warren Buffett and most of the rest of the investing world.

We buy or sell stocks. Warren Buffett buys and (yes, sometimes) sells companies. Warren Buffett doesn't look at what the business (or economy) is doing today. He doesn't look at what the business (or economy) will do tomorrow. He looks at what the business (and economy) will do over the next ten, twenty, thirty or more years from now. He knows that a recession, even a severe one, is just a little bump for a well-run business with market share and products or services that customers will need or want for many years. So, while I looked at the eight hundred dollar price tag of Berkshire Hathaway in 1983 or 1984, and wondered what would happen to that price when the next recession hit, my guess is that Mr. Buffett was looking at the cash that Berkshire Hathaway was going to generate and the businesses he was going to be able to buy at firesale prices from panicked investors whenever financial doom was threatened in the financial press.

If I could ask Mr. Buffett one question, I would ask him what he thought in 1974 (or 1983 even) a share of Berkshire Hathaway would be trading for in 2008. My impression of the guy is that he's a pretty honest man, so I'm guessing that he would tell me only that he believed the return on a Berkshire Hathaway investment would be satisfactory. And then he would tell me to go invest in an index fund, because he would know that I was not willing, nor was I sufficiently schooled in investing, to study his business well enough to understand whether Berkshire Hathaway was a good investment or not.

You see, Warren Buffett doesn't bet on the near-term economy. He doesn't bet on stocks. He invests in companies. He studies the businesses inside and out until he is confident enough in the long-term prospects of the businesses to invest in them. And then he buys the whole darn company. Or just about. Now that is confidence.

And isn't that how people like me should invest if we're going to invest in individual stocks? Treat them as the businesses that they are. Buy the stock as if you were buying the whole shebang. Buy it as though you expect it to be around thirty years from now and kicking some serious business butt. Buy it as though a short-term dip in the economy is exactly that - a short-term dip. And if you are repositioning your portfolio because of a recession, I'm guessing your portfolio may not have been positioned correctly in the first place. I know mine usually isn't. Just ask yourself: What would Warren do? Then, go buy a share of Berkshire Hathaway. The "A" shares will only set you back a hundred and twenty five.........thousand.........dollars or so each.