Warren Buffett: Stock Market advice

Tips and advice for smart investors by Warren Buffet:



1. Beware of companies displaying weak accounting.

2. Unintelligible footnotes usually indicate untrustworthy management.

3. Be suspicious of companies that trumpet earnings projections and growth expectations.

4. Suspect those CEOs who regularly claim they do know the future –and we become downright incredulous if they consistently reach their declared targets.

5. Managers that always promise to “make the numbers” will at some point be tempted to make up the numbers.

6. Derivatives are financial weapons of mass destruction.



7. A director whose moderate income is heavily dependent on directors’ fees is highly unlikely to offend a CEO or fellow directors, who in a major way will determine his reputation in corporate circles.

8. If regulators believe that “significant” money taints independence (and it certainly can), they have overlooked a massive class of possible offenders. (referring to outside directors)

Those attributes are two legs of our “entrance” strategy, the third being a sensible purchase price. We have no exit to strategy –we buy to keep.

That is one reason why Berkshire is usually the first- and sometimes the only –choice for sellers and their managers.

This is the synopsis of Warren Buffet speech in 2003.

Economic and Stock Market Indicators

It is very clear that during the months of September – October the TED spread surged up. This meant that there was hardly any liquidity in the markets and the consequence was a major stock market crash. Then governments around the world injected money into the financial system and this lead to the easing of liquidity globally.So investors need to track this index and any reversal in the downward trend of dollar would mean that stock markets and other asset classes can again fall. So, as long as the dollar keeps going down the markets will remain relatively strong.

It is important for all investors to observe this as any rise in the TED spread again would be alarming and would mean that the global liquidity problem is again coming back. This in turn is bad for the markets as the stock markets are a function of liquidity more then anything else.

Many investors are now wondering why the markets have gone to 14,000. Is it because of a big reversal in global economic activity? The answer is no. The markets are up because the market participants have too much money in their hands indicated by the easing spreads in the above chart.

Just remember the simple rule: Rise in TED Spread is bad for the stock markets and economy and fall in TED spreads is good for the stock markets and the economy (but more for the stock markets).

Investors can track the TED spread using the link below:

http://www.bloomberg.com/apps/quote?ticker=.TEDSP%3AIND

3) Movement of the US Dollar

The movement of the US dollar is a great indicator of the direction in which the stock markets will move. Consider this: