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Warren Buffett on US Fed Tapering: It Doesn’t Matter To Me

buffettdesk_large For those of us who have a modicum of interest in the stock market or the economy, the decision made by the US Federal Reserve on last Wednesday night (based on Singapore’s local time) to not taper its Quantitative Easing Programme would likely have been watched closely.

As it turns out, stock markets around the globe climbed higher after news of the Fed’s decision broke, with our local stock market in Singapore, the Straits Times Index (SGX: ^STI), joining in the fun with a 1.8% climb to close at 3,252 points on last Thursday.

Without an end to cheap money, asset prices can get lifted, or so the theory goes.

But while the rest of the market’s fretting over the Fed’s decision and wondering what comes next, one of the smartest stock market operators in town gave a figurative shrug-of-the-shoulder when quizzed about his thoughts on the Fed’s tapering issue.

Billionaire investor Warren Buffett was interviewed by CNBC shortly after the Fed made its decision and was asked if he was caught by surprise by it. His candid response was utterly refreshing.

I didn’t have any great expectations one way or the other. And it doesn’t really make any difference to me in terms of our business or our investments whether it’s zero or $10 billion or $20 billion. I mean, someday it’ll stop and maybe it’ll go the other direction,” quipped Buffett.

Let this sink in for a moment. This is a man who controls a company, Berkshire Hathaway, with a market capitalisation of close to US$290b and a balance sheet with US$31.2b in cash waiting for him to invest, and he basically doesn’t care what the Fed does?

Why – that makes perfect sense! You see, Buffett has always been preaching about the importance of looking at stocks as a business. And to him, it doesn’t really matter whether the Fed continues its stimulus programme or not.

If he finds a business with good economic characteristics at a fair price in relation to its underlying intrinsic value, he’ll either purchase its shares or the entire business outright – the Fed be damned!

While Buffett’s a billionaire, his willingness to overlook what the Fed does and invest based on the relationship between a business’s price and its underlying value is what individual investors like us can learn from as well. Like what award-winning business writer Morgan Housel from The Motley Fool USA said, “Keep your eye on high-quality businesses, not government policy changes.”

The Fed’s actions have the capacity to temporarily inflate or deflate asset prices, particularly stock market prices. But that doesn’t necessarily change the underlying long-term value of businesses quoted in the exchanges around the world and in Singapore.

Ultimately, what drives a company’s stock price over the long-term would be the amount of cash flow and profits it can make for its shareholders by selling its products or services, not what the Federal Reserve can do.

Would you stop pushing your trolley carts around Sheng Siong’s (SGX: OV8) namesake supermarkets based on what Ben Bernanke (chairman of the US Federal Reserve) says? Or would you stop using your mobile phone’s data plans – provided by either of the triumvirate of SingTel (SGX: Z74), Starhub (SGX: CC3), or M1 (SGX: B2F) – at a whim because of what the Fed does?

The intrinsic values of those businesses are driven largely by the execution, control of expenses, and handling of change in the business environment by their management, in addition to our spending habits. That’s what’s important, not the Fed.

Warren Buffett Foolishly doesn’t care about the Federal Reserve’s tapering actions. Neither should you.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing owns B-Class shares of Berkshire Hathaway.