Alice Schroeder, the Bloomberg columnist and former insurance analyst who knows all there is to know about Warren Buffett, offered advisors some sage advice—and a few warnings—about the outlook for the economy post-election day.
Speaking Wednesday at the National Association of Personal Financial Advisors’ (NAPFA) 2012 regional conference in Baltimore, Schroeder (left)—who penned the book The Snowball: Warren Buffett and the Business of Life, and is working on another book detailing how Buffett selected his investments and got rich—noted positive trends she sees in the economy that “offset dire risks that people are worried about.”
One of those “dire risks” is the looming fiscal cliff that must be addressed during the lame-duck session. While not elaborating on the outcome in her prepared remarks, Schroeder told AdvisorOne in a separate interview that the nation “had an incredible era of partisan conflict” during Obama’s first administration, and given that the election outcome has not changed the construct of which party controls each chamber of Congress, lawmakers will “have to come together” and agree on a solution, as Americans will not stand for anything less. While “we may go over” the fiscal cliff temporarily, a disaster scenario will likely be averted, she said.
Lawmakers, Schroeder said, ”will protect their own interests by reaching a solution of some kind [on the fiscal cliff] to avoid the ire of their constituents, albeit not necessarily a perfect solution. But something will be done.”
One positive trend Schroeder said she sees is in the area of risk management. “The great growth industry of the 21st century is risk management,” she said. “What investors should be doing now is being creative in scouring the horizon for opportunities in risk management,” adding that “the sophistication in which we manage risk is going to grow very fast.” She also said she “wouldn’t be surprised” to see a risk fund launched sometime soon.
Noting her close relationship with Buffett (right) after following Berkshire Hathaway stock for five years and spending quite a bit of time at the company’s headquarters in Omaha while compiling her book, Schroeder said Buffett “taught me how to think about risk.” His advice: “Never bet more than you can afford to lose in any circumstance,” and the “ultimate shield against risk is valuation.”
Areas that Schroeder said are “underrated by economists,” but offer great promise, are innovations in science, engineering and the virtual world. For instance, cybercrime is a big risk, however, “great things are being created to mitigate that,” she said.