Buffett’s 3 Investment Principles That Do Well in a Bear Market
The AEX has already fallen by 15% this year and the American S&P500 is in even worse shape. If everything goes up, everyone is a winner, but when markets are falling, investors should pay more attention. We take three timeless pieces of advice from master investor Warren Buffett to heart.
After the crisis of 2008, the central banks started to scatter money, and since then the stock markets have gone up. Now that they stop doing that, and raise interest rates, corona still causes problems in the supply chain and energy can only remain affordable with tricks, prices are falling.
Many investors have lost all their profits or are even in the negative. Some panic is therefore very understandable. Yet, with a few simple rules, there is still quite a bit to be done, according to the American investment site The Motley Fool.
When everyone’s worried, it’s time to buy
Warren Buffett, CEO of insurance and investment company Berkshire Hathaway, writes a letter to its shareholders every year. A 1986 statement has eternal value: “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” In other words, we just try to be careful when everyone else is greedy, and only when everyone else is careful are we greedy ourselves.
This is that moment: everyone is careful. Are the markets going down further? Nobody knows. What is certain is that beautiful quality stocks are now trading below their fair price.
Don’t lose money
“The first rule of investing is Don’t lose money, and the second rule is Don’t forget the first .” From the no-brainer department, this one, but there’s something behind it: There’s only one way to lose money investing, and that’s to sell your stocks at a loss.
The only reason to sell at a loss is if the investment case is no longer correct. If the business model has changed, for example like AT&T, or does not seem to work (anymore).
Falling prices are not a good reason. If you don’t sell your shares, you haven’t lost any money. And if the company is good, the stock will also bounce back – just like Berkshire Hathaway itself, which has lost half its value three times in its history ( you can read that Buffett himself is sometimes wrong, you can read in this article )
This year, however, it is in the plus. So it can go wrong.
Stay away from that app
Don’t sit around checking prices all day. If your investment is good, you don’t have to look for five years, Warren Buffett believes. The question is whether he sticks to it himself. But you invest for the long term, and the price fluctuations that you get to choose from day after day make that more difficult.
Ultimately, the Oracle of Omaha, as Warren Buffett is known, isn’t extremely smarter than the average investor. What he is especially good at is turning off his emotions. He doesn’t sell in panic, he doesn’t follow the herd after a popular stock.
Buffett calculates, calculates again, and decides to buy on purely rational grounds. And it hasn’t hurt him: he’s been investing for 75 years, and he’s got $109 billion.
