When Warren Buffett speaks, the world listens. This week, while researching investment ideas in Korea, the Oracle of Omaha stated that Japan is a buying opportunity:
"Frequently, something out of the blue like this, an extraordinary event, really creates a buying opportunity. I have seen that happen in the United States, I have seen that happen around the world. I don't think Japan will be an exception."
Of course the "extraordinary event" he is referring to is the devastating earthquake and tsunami that hit Japan on March 11, 2011. A value investor, Mr. Buffett likes to look for opportunities to buy shares of stock in companies that investors are afraid to buy and then hold the shares for at least 5 to 10 years. He is also famous for saying, "Be fearful when others are greedy and be greedy when others are fearful."
Certainly, at the moment, "others are fearful" primarily due to the uncertainty related to the Japanese nuclear power plant damaged by the tsunami. There is no doubt that psychology can drive prices of stocks to irrational levels both high and low. However, according to a recent ABC News report, Radiation Reality Check, radiation levels are not anywhere near lethal and a Chernobyl-size event is looking less and less likely by the day. Therefore the fear driving recent stock prices in Japan is based upon the unknown, not on reality.
Others Are Fearful But Should You Be Greedy?
Japan's economy certainly took a hit from the earthquake and tsunami but the radiation fears followed by panic selling of Japanese stocks may have produced opportunities for a long-term investor, as Mr. Buffett suggests. Before jumping in to Japanese stocks, however, keep a few general investment guidelines in mind:
- Stocks and stock mutual funds are ideal for investors with long-term time horizons, which are 10 years or more.
- Heavy concentrations of exposure to one country, especially outside of the US, increases market risk.
- Foreign stock should not generally exceed more than 20% of your overall investment portfolio.
Remember: If you want to "be like Buffett," you won't make quick, irrational decisions. Also, you may already have sufficient exposure to Japan if you currently own a foreign stock fund.
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