The best piece of investment advice I’ve ever read comes from the legendary Warren Buffett. It’s his Rule #1: Never Lose Money. In essence, it means focus first on avoiding mistakes — take care of the downside and the upside will take care of itself, you might say.
With Brexit dominating the UK’s political and economic landscape, are there any key mistakes we should specifically avoid in 2019? I think so.
Beware fallen stocks
The FTSE 100 is full of shares trading at lower P/E levels than a decade ago I wouldn’t have thought possible. Am I saying we shouldn’t buy them? No, just that we should avoid buying the wrong ones.
OK smartypants, I hear you saying, how do we know which are the wrong ones? I can’t know, but I think there’s a key precaution we can take. Many are depressed purely because of Brexit worries and the companies are fine, but there are shares that genuinely deserve to be down in the dumps.
Take Kier Group. It’s crashed because of problems with the company itself. But including it in a ‘fallen stocks’ portfolio just because it’s down would surely be a mistake. When markets are down, we need to be especially careful to distinguish between stocks hit by general macro issues and those with genuine problems of their own.
Brexit timing
I’ve been asked how to time share purchases to make the best of, and avoid the worst of, Brexit. Buy such-and-such a share now, wait until after 31 October, or will waiting mean we’ve missed our chance to get in at the lowest price?
I say ignore all that and make decisions only on what we know now. If, after examining a company’s fundamental business and valuation, I think it represents a bargain now, it goes on my buy list or my watch list and, if not, it doesn’t. That examination obviously includes my estimates of how various Brexit results might affect a share. But any buy decision I make will be “buy now”, not “buy in November”, or whatever.
I have a reasonable sum to invest that I’ve liberated from an old company pension fund and moved to a SIPP, and I’m aware that we could be facing various economic outcomes over the next few months. I’ll probably spread my purchases over the next 12 months — but I’d do the same with any significant investment amount.
Don’t be too greedy
To get back to Warren Buffett, one of his most famous quotes is: “Be fearful when others are greedy and greedy when others are fearful.” So when stocks we like are pushed down to silly low valuations due to fear, should fill our boots with as much as we can afford to buy?
I just don’t have a Buffett level of confidence, and I doubt many other private investors do either. Yes, I can see stocks I think are seriously undervalued. But no, I’m not going for any big “bet the farm” investments, because even with my reasonably long experience, I think that would be reckless.
I take the core of Buffett’s advice to heart, but I’ll be making modest investments across a diversity of stocks.