Warren Buffett is rightly regarded as one of, if not the best living investor on the planet. If I’m to gain the most from his wisdom however, I think it’s vital that I put Buffett’s teachings to work when markets are in a funk rather than when everyone is dancing in the streets. In other words, NOW!
So here’s what I’m doing.
Feel the fear and buy anyway
Buffett is no stranger to market capitulations. At 91 years of age, he’s seen Mr Market swing from optimist to pessimist and back to optimist many times over. And yet he’s managed to become a billionaire in the process. What gives?
Well, one of his best-known rules is to “be greedy when others are fearful“. Right now, I’d say the latter is very much the case. Inflation, rising interest rates, the war in Ukraine — there’s no shortage of things to ruminate over.
True to his word however, Buffett has been spending billions of dollars in this 2022 market sell-off. These include sizeable stakes in Citigroup and media giant Paramount Global. He’s also been buying energy companies Chevron and Occidental Petroleum. Video games developer Activision Blizzard and tech giant HP have been on his shopping list too.
I’ve also been buying, adding to my position in battered growth fund Scottish Mortgage Investment Trust in July. It’s down 40% this year. Lovely!
Hold on… like Buffett would
Buying in a market meltdown is all well and good but it’ll mean nothing if I don’t hang on to what I’ve bought long enough to see it bear fruit. Again, I’m taking inspiration from Buffett here: “If you don’t feel comfortable owning a stock for 10 years, you shouldn’t own it for 10 minutes.”
I suspect ’10 years’ was an arbitrary number but this isn’t the point. Ultimately, he is urging people to avoid thinking like traders and concentrate on becoming business owners. That’s not always easy. Round-the-clock news coverage of the global economy risks turning even the most sanguine individual into an impulsive mouse-clicker.
Buffett won’t be swayed. Unless something he owns runs into an issue that will seriously put its ability to make money at risk, he doesn’t do anything. It’s why he’s owned stocks like Coca-Cola for so long (and made a lot of money in the process).
So I feel the worst possible thing I can do at the current time is to crystalise losses in existing positions. The second worse thing I can do is sell what I’ve just bought because it doesn’t head up in value immediately.
I’m a Fool, not a mug
Ultimately, no one knows where the markets are going next and trying to time things precisely is a mug’s game. There are simply too many factors that dictate share prices for the human brain to calculate, at least consistently. And that includes Buffett’s brain.
Here’s the good news. Even if history is only a very rough guide, buying when everyone is selling increases the probability (but not the certainty) that my end result will be good. Go back to any crisis in the past and, regardless of what’s happened, it plays out the same. Markets recover.
Like Buffett, I’m using this market mayhem to accumulate quality stocks. I think it’s the Foolish thing to do.