I repeatedly warned in late 2021 that this year was likely to be much tougher year for investors. And so it has been, as US stocks have tumbled and price volatility has soared. So far in 2022, the S&P 500 index has lost 12.8% of its value, while the tech-heavy Nasdaq Composite index has crashed 22.5% since 2021. With investing proving so much scarier this year, I wonder how my hero, investment guru Warren Buffett, would invest his spare cash right now?
Warren Buffett buys big during market panics
In a nicely timed article at the height of the global financial crisis of 2007/09, Warren Buffett penned this soothing piece for the New York Times. Following the collapse of US investment bank Lehman Brothers, Buffett wrote, “Be fearful when others are greedy, and be greedy when others are fearful”. At that time, the Oracle of Omaha said he was investing 100% of his net wealth into US equities. Hence, I think the great man wouldn’t panic today. Instead, I expect he’d see recent price falls as an opportunity to buy shares in great businesses at lower valuations.
Buffett advises investors to navigate, not predict, markets
Warren Buffett recently remarked that investors would be much better off in the long term “by navigating the stock market, not predicting it”. He added that investors should go ahead and invest in their chosen stocks and then watch market movements to decide whether to buy more of those stocks or sell them.
The mega-billionaire argues that this strategy has a higher chance of return, while also taking away some of the pressure of trying to predict the future. And if shares in an otherwise sound business fall after he buys them, Warren Buffett generally buys more, simply because they have become even cheaper. As he added earlier this month, “We’ve not been good at timing. We’ve been reasonably good at figuring out when we were getting enough for our money”.
Buffett buys into great businesses at reasonable prices
Another lesson I have learnt from Warren Buffett — who has a personal fortune of over $115bn — is that it’s perfectly okay to pay premium prices for quality goods. As he puts it, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”.
Taking this wise advice on board, throughout this year, I’ve been putting together a watchlist of quality companies whose shares look fairly priced to me. This list includes a number of FTSE 100 firms, including mega-cap giants such as Shell, Unilever, Diageo, BP, Rio Tinto, and so on. Personally, I think the FTSE 100 offers deep value to patient value investors like me (and Warren Buffett).
To sum up, I’m a veteran value investor who knows that buying shares in good companies is not like buying lottery tickets. If I buy into great businesses that keep doing well, then their share prices, buybacks, and cash dividends should rise over time. And that’s why I’m always searching for shares offering market-beating earnings yields and high dividend yields. And then, like Warren Buffett, I buy and hold tight — sometimes for decades, if I’ve bought wisely!