The past few years have been a powerful reminder of how unpredictable things can be for investors. But famous investor Warren Buffett has been active in the stock market for decades. So I think he is in a good position to look at choppy markets and make smart decisions about what it means for his long-term investment strategy.
Here is how I think Buffett’s advice can help me invest now for an uncertain future.
No crystal ball
Buffett’s view on the future is very simple. He once said: “In the business world, the rearview mirror is always clearer than the windshield.”
In other words, it is much easier for businesses to see and understand what has already happened than what will come next. That may sound obvious, but I actually think it is powerful, actionable advice.
Lots of companies do not even see what has already happened very clearly. They continue to work hard trying to keep a previously successful business model going when market conditions have changed. Even Warren Buffett himself has made that mistake a few times, for example with clothes manufacturing at Berkshire Hathaway and US-based footwear manufacturing at its subsidiary Dexter Shoe.
If it is hard to have a clear view of what has already happened in business, it could be even more difficult to see what is coming next. Look back at 2020 and the massive amounts of capital raised by companies like Rolls-Royce. Management teams at many firms were blindsided by the pandemic. Even though a company like Rolls-Royce had gone through similar demand slumps, for example after the 2001 US terrorist attacks, it still seemed to be caught in the headlights by fast-changing events.
Warren Buffett stands ready
So, how does he prepare for this? He does a number of things, which each seem useful for me to apply to my own investment approach.
First, he always has spare money to hand. That can be useful for scooping up bargain shares in a fire sale.
Another Warren Buffett move is to invest in industries that are likely to experience resilient demand in the long term even if unexpected events occur. From insurance to freight railways, he likes investing in businesses that tend to see customer demand stay strong no matter what else is going on in the world.
He also tends to buy shares in companies with iconic brands, such as Coca-Cola. If inflation pushes up costs, a business selling commodities cannot raise its prices more than competitors without risking losing business. But there is only one Coke – or Fanta. A strong brand can give a business pricing power, helping to maintain profits during economically tough times.
Investing for the long term
Warren Buffett thinks a lot about the future as he takes a long-term view when buying shares. He is not simply looking at this year’s profits or sales trends. Rather, he is focused on trying to find businesses with strong economic characteristics that could help them make money for decades.
Just like him, I am applying that principle in my own search for the right shares to buy for my portfolio right now.