Last year was a dreadful one for the FTSE 100, which ended the year down 12%, and 2019 has started in a blaze of volatility.
The index currently trades at 6,783, similar to levels seen two years ago, and could go anywhere from here. At times like these it pays to listen to the coolest investment head of all, US billionaire investor Warren Buffett, whose words of wisdom are always worth remembering in tough times. So what would he do today?
1. Get greedy
No apologies for dusting off Buffett’s most famous quote: “Be fearful when others are greedy and greedy only when others are fearful.” It is worth repeating because this is such a difficult thing to do. Most people are fearful when others are fearful, and greedy when they are greedy. We are animals like any other, and we are prey to the herd instinct. You need to do your best to resist such copycat behaviour, and get your greed on today because there are big discounts out there.
2. Hold your nerve
This fabled Buffett saying might seem nonsense in times like these. “Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.” How does that work, exactly? Surely all investors are losing money right now? Yes, but these are only paper losses, unless you make the mistake of crystallising them by panic-selling in the middle of a slump. You have to tough this one out and wait for markets to recover, as they should if you give them enough time. This doesn’t mean you should do nothing though…
3. Avoid getting over-exposed
Anyone can make money when markets are rising but as Buffett has famously noted, “it’s only when the tide goes out that you discover who’s been swimming naked.” A stock slump can highlight flaws in your portfolio, especially if it is falling faster than the rest of the market. Take this opportunity to see where your exposure is, and how well-balanced your investments are. You might want to bail out of some sinking companies – or take this opportunity to buy more of their stock.
4. Don’t be too clever
Nobody in the world can time the market correctly with any consistency, not even Warren Buffett. Does this discourage the great man? Not a bit of it. As he once said, “it is not necessary to do extraordinary things to get extraordinary results.” The simplest way to play this market is to take advantage of share price dips to buy a spread of low-cost exchange traded funds, then follow his next saying.
5. Hold on
Constantly buying and selling is a waste of effort and also money, as you will rack up hefty dealing charges and probably get your timing completely wrong anyway. Buffett will have none of it. “Our favourite holding period is forever,” he said. The FTSE 100 may be having a rough time today but it could still hit 8,000 this year. Even if it doesn’t, today’s worries are only a blip when set in the context of forever.