Making Money In This Market

Warren Buffett, a.k.a. the "Oracle of Omaha" for his savvy investments, is shopping his way through the financial crisis. Even before Washington passed the bailout bill, his Berkshire Hathaway holding company had put $3 billion into General Electric and $5 billion into Goldman Sachs, and he admits he's trawling for more good deals. "You want to be greedy when others are fearful ... It's that simple," he said in a PBS interview with Charlie Rose, adding that Americans are as fearful now as he's ever seen them. "We're seeing [stocks] that are attractive right now." His disciples agree. "It's nirvana for us, we're buying things hand over fist right now" says self-described Buffett junkie Whitney Tilson, managing director of the T2 Partners hedge fund.

But just because Buffett and still-cash-rich hedge funds are betting on the market to rebound, does that mean average investors should ante up? [Disclosure: Buffett is a member of the board of directors of NEWSWEEK's parent, The Washington Post Company.] Let's assume for a second that you believe in business cycles and see a future in which financial health returns. Chances are you considered buying shares on days like Monday (Sept. 29), when the market fell 778 points, or Thursday (Oct. 3), when it dropped another 348. Of course, not everyone has Buffett's deep pockets or the ability to negotiate deals that everyday investors can't get. Both Goldman and GE are paying him 10 percent interest on his investments, for example. Good luck finding that.

Still, employing Buffett's thrifty lifestyle and his investment principles might actually enable you to make money in this market—or at least position yourself for future prosperity. That is, if you proceed with caution. Here's what Warren might do if he were you.

• Invest in good, solid companies. Just because a company is cheap doesn't mean it's a bargain. In Buffett's universe, a good company has a recognizable brand name, a solid profitable business that could thrive well into the future. It is run by a good manager. And it has low debt levels and cash on hand, so that it can afford to weather a recession or credit-market squeeze without going belly up. These companies may be selling at good prices because they are in sectors—like retail, finance, real estate—that have been beaten down. Where might you find these companies? Perhaps you already own them. Look at the stocks you've bought in the past, and re-analyze them to see if you'd still buy them today. If so, buy more whenever Wall Street beats them up. Research solid companies, and keep a shopping list so that you'll know what you want to buy when prices drop.
  
• Buy like Buffett. Stock picking is really hard, and possibly impossible for average investors who don't have the time and inclination to read quarterly reports all day. You can buy shares of Buffett's company, Berkshire Hathaway and "just let Warren Buffett invest for you," says Tilson. It's up more than 17 percent in the last month alone, a time when the Dow Jones Industrial Average lost 6 percent, reports Morningstar.
  
• Invest in Asia. Buffett's been buying Chinese stocks and so has another of his disciples, Baltimore financial adviser Drew Tignanelli of The Financial Consulate. China, Japan, Hong Kong and Singapore have a lot of buying power right now, he says. "Once they unleash their liquidity, it will be the turning point in this market."
  
• Get paid to wait. The prices of dividend-paying stocks have been beaten down, too, and that means that the dividend yields look juicy. You may not be able to get a company to pay you 10 percent, like Buffett does, but search for high-yielding stocks and collect dividends while you wait for prices to return, suggests Tignanelli.
  
• Live below your means. Buffett always has cash to invest because he never spends all that he has. He famously still lives in the same Omaha home he bought for $31,500 in 1958. If you keep your expenses down and pay down your debts, you can afford to not worry about the lender calling your account due or having to sell your stocks at the wrong time to raise money to pay bills. Sleeping at night is worth a lot of money.
  
• Keep an eye on fees. Buffett has been extremely critical of the financial-services industry's propensity to pile fees on top of every transaction. Invest through exchange-traded funds (ETFs) or low-cost mutual funds while you've got the opportunity to recast your portfolio.
  
• Think long term, and keep the faith. Buffett is well known for being a long-term buy-and-hold investor. He's investing in companies today that he expects might not pay off for three to five years or more. Today's troubles are just that, he has asserted. "This country is going to be living better 10 years from now than it is now. It will be living better in 20 years from now than 10 years from now," he said in his PBS interview. Be similarly upbeat about the long view, and it makes it easier to go shopping during the sell-offs.
  
• Do something that gets your mind off of your financial troubles. Buffett plays bridge 12 hours a week. See your friends, rent a good movie and count your blessings. Try not to dwell on the money you're losing now ... or at least train yourself to see it as a great opportunity. You know Warren would.

© 2008