With inflation skyrocketing, the stock market taking a dip, it is an uncertain time for investors. But look no further than master investing legend Warren Buffett who offers advice on fear and five top tips.
The current environment is certainly a time of fear. Inflation is skyrocketing to a 40-year high, interest rates are up, fuel prices are exploding, and president Joe Biden recently told Americans to expect food shortages. To call it a time of uncertainty would be an understatement.
However, in a 2008 New York Times op-ed during the great recession, Buffett has given this advice before. He reasons that stocks are at their cheapest when fear is running high, making it a great time to buy. Buffett has profited from buying quality companies when markets are crashing.
“The stock market is a device for transferring money from the impatient to the patient,” Buffett said.
Ride out the highs and lows by holding on to stock from quality companies.
“Buy into a company because you want to own it, not because you want the stock to go up,” Buffett says.
He gave this advice to Forbes Magazine all the way back in 1974 and continues to utilize this strategy.
The stock value of quality companies has its highs and lows. But Buffett encourages investors not to react to whims or news reports. Purchase stocks for the long haul because you believe in the underlying value of the business, US News reported.
In a 2013 letter to Berkshire Hathaway shareholders, Buffett said the following.
“Most investors, of course, have not made the study of business prospects a priority in their lives,” Buffett wrote. “If wise, they will conclude that they do not know enough about specific businesses to predict their future earning power.”
“I have good news for these non-professionals: The typical investor doesn’t need this skill,” Buffett added. “Just invest your funds in a low-fee index fund tracking a broad cross-section of businesses.”
Buffett left this advice for his wife’s trustee: “Invest 10 percent of her cash in short-term government bonds and the other 90 percent in a low-cost index fund tracking the Standard & Poor’s 500 index.”
Buffett suggests Vanguard as an index fund.
Buffett advises sticking with what you know.
“After 25 years of buying and supervising a great variety of businesses, Charlie [Munger, his business partner] and I have not learned how to solve difficult business problems. What we have learned is to avoid them,” Buffett wrote,
“to the extent, we have been successful, we concentrated on identifying one-foot hurdles that we could step over rather than because we acquired any ability to clear seven-footers,” Buffett continued. “The finding may seem unfair, but in both business and investments, it is usually far more profitable to simply stick with the easy and obvious than it is to resolve the difficult.”