When investing feels challenging, as it does at the moment, I always find it useful to draw on the wisdom of the greatest investor of all time, Warren Buffett.
Since Buffett began investing in the 1960s, he’s experienced a number of steep stock market declines, including the 1973/1974 crash, the ‘Black Monday’ crash in 1987, and the Global Financial Crisis (GFC) of 2008/2009. Yet he’s still managed to generate returns of over 2,000,000% for his investors. With that in mind, here are five gems from Buffett that I think are particularly relevant right now.
“Widespread fear is your friend as an investor because it serves up bargain purchases”
This quote is a great place to start in the current environment because investor fear levels have been off the charts recently. Indeed, the CBOE VIX index, which is often referred to as the ‘fear index’, has risen to a level not seen since the GFC. Buffett suggests we should use this fear to our advantage. As he says, fear serves up bargains.
“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble”
This quote refers to the fact that compelling buying opportunities (bear markets) don’t come around all that often. For example, the last time stock prices fell as much as they have recently was 2008. Buffett’s advice? Don’t be afraid to buy up big when stocks are super cheap. You don’t want to look back at this time as a missed opportunity.
“The best thing that happens to us is when a great company gets into temporary trouble… We want to buy them when they’re on the operating table”
This is another top quote that is very relevant right now because there are a lot of great companies that appear to be in temporary trouble, due to the coronavirus.
Take alcoholic beverages champion Diageo, for example. This is a top-shelf company with a fantastic track record and a compelling future growth story. Yet its share price has tanked because, in the near term, it’s likely to see a hit to profits due to the coronavirus. This temporary setback could be an amazing buying opportunity for investors.
“We’re buying businesses to own for 20 or 30 years. We think the 20- and 30-year outlook is not changed by the coronavirus”
Buffett’s advice is to think long term-term, however, if you’re a buyer of shares in this market. Volatility could remain high for a while. So, if you buy a stock today, don’t worry about what it does tomorrow, next week, or next month. Instead, give yourself a long-term investment horizon, as he does.
“In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497”
Finally, this quote is a great summary of the type of shocks the stock market has to endure over time. Last century, stocks were impacted by all kinds of catastrophic events, all of which would have scared investors at the time. Yet the Dow Jones index still generated incredible long-term returns for investors. That’s certainly something to keep in mind right now, given the challenges we are currently facing.
