Tags: Rattner | Buffett | Buy | Stocks

Steve Rattner: Follow Buffett, Buy Stocks Now

Friday, 02 March 2012 12:31 PM

Warren Buffett has it right: Stocks will destroy bonds over the long term and investors should buy in, says Steve Rattner, the former private-equity fund manager who oversaw the government rescue of the Detroit auto giants General Motors and Chrysler.

The S&P 500 is cheap “by almost any measure” Rattner writes in a Financial Times column, trading at 14.1 times recent earnings vs. an average of 16.8 times earnings since the late 1970s.

“Perhaps most dramatically — and almost without historical precedent — the dividend yield on the S&P index is currently higher than the 10-year Treasury yield. Either stocks are cheap or a lot of companies will soon be reducing their payouts,” Rattner writes.

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Investors might be emboldened by the recent performance of bonds to stay in fixed income and avoid the perceived risk of buying equities. They are discounting, Rattner says, financial history itself.

Looking back over 35 years, he explains, stocks were the obvious winners, returning 10.8 per year vs. 8.2 on the bond index. The difference, when compounded, is more than double the return in cash terms, Rattner points out.

“I’m betting that Mr. Buffett will be proved correct. Over a reasonable period of time, shares will almost surely outperform fixed income instruments. If they don’t, centuries of finance theory will have to be discarded,” he notes.

Another major money management figure, BlackRock CEO Laurence Fink, recently echoed the warning that Americans are taking bigger risks than they understand by failing to buy stocks.

Americans must save much more and invest it, pronto, Fink told CNBC.

"We’re all going to live longer. . . and in the U.S. especially we’re not even prepared financially to finance the lifestyle we’re looking for," Fink said.

BlackRock feels “a responsibility to speak to this giant savings gap. We’re not thinking about the financial aspects of living longer," he said.

The latest figures from the Centers for Disease Control estimate that a male American can expect to live to just over 76 and a female is likely to top 81 years of age. At the turn of the previous century, men were living to about 46 and women to 48.

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Friday, 02 March 2012 12:31 PM
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