The Firm foresees so serious a decline that any investor should, when urged by increasingly hungry salespeople to “buy,” ask themselves repeatedly: “Exactly when is cheap actually cheap?”
The answer is, only when it becomes reasonable to expect the asset to rise in price. An important point to remember here is that the prices of assets do not all move in unison as an economy transitions from growth to recession and vice-versa. One should thus be careful to judge each economic sector and asset class on its own merits. For example, Warren Buffett rightly sees blood gushing in the street of the bond insurance world. He possibly judges it too early to buy a mature, downgraded bond insurance company (loaded with a book of business that looks more like a can of worms). Better to leave that to the major banks and financial institutions, themselves embroiled in collateralized debt obligations (CDOs), to cobble together their own, self-interested rescue package! However, it may be a great time to form a new company, staffed by skilled employees (laid off by competitors), one able to charge new, realistic rates that reflect a depressed insurance market. Furthermore, it is a large
