I was about to write a series of articles entitled “Follow Warren Buffett’s signal on when to SELL stocks, when I realized that I still have not finished the third installment of the series on when to buy stocks.
I first wrote “Follow Warren Buffett’s signal on WHEN TO BUY stocks-Part 1” last December 17, 2008. It was followed up by “Follow Warren Buffett’s signal on WHEN TO BUY stocks-Part 2” almost 2 months later that is on February 2009.
I really thought I have uploaded part 3 of the series, but a search on the posts I wrote revealed that I haven’t uploaded it in my blog. Anyway here is the last part of this 3 part series. To read the previous parts just click on the links above.
3.) Individual calamity – Another good time when to buy stocks is when companies suffer individual calamity. These refer to situations when brilliant companies do something stupid ending up losing money or when something adverse happens to an individual company but nevertheless does not affect its long term economics. An example cited in the book was Buffett’s move in buying stocks of American express, despite the company’s losses in the “Salad oil scandal” of 1963.
The best Philippine example of this is that of Manila Water Corporation (MWC), whose stock price dropped more than 30 % in less than 7 days when the company encountered concession problems as reported in the newspapers starting January 15, 2009.
4.) Structural changes – These refers to situations wherein internal structural changes such as mergers, consolidation and re-organization have an impact on the stock price. This is the most unique among the five since this kind of situation can either have a positive or negative impact of a certain stock. What we will be looking for is the negative impact since this translates to lower share price which indicates a perfect time on when to buy stocks of a certain company. Structural changes that have a positive impact on the stock may be considered “buying opportunities” but should be considered with caution. As what Warren Buffett used to say “The dumbest excuse to buy a stock is when the price is going up.”
In the Philippines, there are several examples of structural changes having a positive impact on their stock prices. Like for example just this year the stock market reacted irrationally and widely overpriced Meralco. (MER) It priced the stock to almost P 130 per share in less than 2 months time from the P 50 territory. This was the market’s response to a structural change more specifically to rumors of a take over by San Miguel Corporation. However I could not cite a structural change that had a negative impact, drop me a comment if you know of one so I can cite it here.
5.) The War phenomenon – War not only translates profits for makers of war machineries, it also gives a signal as to when to buy stocks since this translates to lower share prices which again means buying opportunities. “The time to buy,” says Nathan Rothschild Rothschild, “is when blood is running in the streets.” If you take a look at the chart at wrote “Follow Warren Buffett’s signal on WHEN TO BUY stocks-Part 2” you can see how the Bombings of Bali and the Gulf war brought prices down even if the war is far from our shores.
So there you have it. These are the five situations that have been cited by Mary Buffett and David Clark wherein Warren Buffett considers buying stocks. During these times, the average lay man would not want to get into the stock market because of fear. But these are just the perfect time to start buying stocks and start getting rich. As Warren Buffett says, the secret to getting rich is to “ . . . be fearful when others are greedy and greedy when others are fearful.”