Abu Dhabi, UAESaturday 30 May 2020

Adopt a long-term financial strategy to come out on top in this short-term crisis

Ignore the doomsayers and focus on the future recovery when it comes to managing your portfolio

Follow the lead of Warren Buffett, the chief executive of Berkshire Hathaway, to find the right path for your finances through this crisis. Reuters
Follow the lead of Warren Buffett, the chief executive of Berkshire Hathaway, to find the right path for your finances through this crisis. Reuters

If you were around during the 2008-09 global financial crisis you might recall the doom-laden post-crisis predictions of New York University economist Nouriel Roubini.

While he was one of the few to spot the subprime lending disaster before it happened, his predictions about the aftermath of the crisis were proved to be wholly incorrect as were the prognostications of another ‘Doctor Doom’ Marc Faber, an old friend of mine, and a legion of lesser pundits.

The world is not going to shrug the coronavirus off without a deep and painful recession.

Peter Cooper

Ben Bernanke, Federal Reserve chairman at the time, was publicly ridiculed by these gentlemen. He could therefore be forgiven for wryly observing many years later that their scary predictions of hyper inflation and economic collapse were "completely wrong".

It was very much the same with commentators after Dubai's experience of the global financial crisis was compounded by a local property downturn.

When the former editor of The Times, Simon Jenkins, wrote a particularly nasty article about Dubai, I wrote to him to protest and explained how the city could and would recover. To be fair to him, he did bother to reply, telling me ‘only one of us can be right’.

With the effects of the global financial crisis still being felt around the world, then, as now, you had to peer beyond what seemed to be an endless crisis and invest for the long-term. For canny investors with cash ready those were moments of huge opportunity. Warren Buffett made $3.7 billion (Dh13.59bn) on his $5bn rescue of Goldman Sachs in 2008 when they redeemed his preference stock in 2011.

Only last year Mr Buffett’s now $128bn heap of cash was being laughed at, while the S&P 500 raced 29 per cent higher. But today he is uniquely well-placed among large investors in having a sizeable amount of cash ready at just the right time, yet again. Not bad for an 89-year-old.

Of course this is not necessarily going to be an easy period for the global economy. The world is not going to shrug the coronavirus off without a deep and painful recession.

Asset prices will most probably not be entirely supported by unprecedented central bank and government initiatives. There will be real financial losses, bankruptcies and very much higher unemployment.

But investors do not become rich by investing when everybody else thinks it is a good idea. They do it by buying "when there is blood on the streets", as goes the saying attributed to Nathaniel Rothschild, one of the 18th Century's richest men.

Last week’s bear market rally was likely not the time to buy and rather more of a chance to sell.

Do however keep an eye on what Warren Buffett is doing. Recent filings showed only a single $42 million deal. That’s peanuts for the Sage of Omaha, so don’t jump the gun.

Stay safe, keep your powder dry and think long-term.

Peter Cooper has been writing about Gulf finance for 25 years

Updated: March 30, 2020 09:16 AM

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