Stephen Wright | Thursday, 24th February, 2022
Volatile markets can be challenging. As an investor, I know it can be difficult to hold on to investments when market volatility causes share prices to drop. But selling investments in a downturn would be the worst thing that I could do for my investing goals.
With that in mind, here are five pieces of advice from Berkshire Hathaway Chairman Warren Buffett that I use to help me hold on when market volatility makes selling tempting.
1. Buy at the right price
Buffett’s most important advice is to invest in stocks when they trade at a discount to their intrinsic value. If I buy a stock above its intrinsic value, then I have no reason to think that someone should ever pay more for it than I paid. That makes it hard to hold onto the stock when market volatility is high and prices fall.
If I buy at a discount to intrinsic value, though, I can be confident that I’ve made a good investment that I can hold onto for the long term.
2. Think like a business owner
Buffett also advises focusing on owning businesses, rather than stocks. In other words, I should look to make investments based on what I think the business will produce, not what the stock price will be. Following this advice helps me cope with market volatility.
A short-term change in share prices doesn’t change what the underlying business is producing. So if my investment thesis is based on the business, not the stock price, it isn’t affected by market volatility.
3. Know what I own
Staying within what Buffett calls my circle of competence makes it easier for me to navigate market volatility. It’s important for me to invest only in things where I understand the economics of the business and the the industry that it’s in. When the price of something I own drops sharply, it’s a sign that the market disagrees with me about its intrinsic value.
When this happens, it’s important for me to be confident that it’s a good investment and I can only be confident of this when I’m investing in something that I can understand.
4. Delay gratification
According to Buffett, markets are much more predictable over a long period of time than over a short one. When I invest, I do so with an anticipation of where the business will be 10, 20, or 30 years in the future. Market volatility might cause anything to happen to stock prices in the short term.
But keeping in mind the fact that short-term movements are not part of my investing thesis helps me to not worry about price fluctuations brought on by market volatility.
5. Focus on what I can control
Market volatility is not something that is under my control. I can’t make stock prices go up or down. When markets are volatile, I find it helpful to think about Buffett’s advice for inflationary periods. Buffett advises that the best thing to do when inflation is high is to concentrate on my own earnings power.
With that in mind, I try to focus on maximising my income and keeping my expenses under control, instead of looking at how my investments are performing when market volatility is high.
The above article was published by the Motley Fool UK on 24th February 2022
Warren Buffet is probably the most well known investor on this earth, and while there will be ‘new trends’ and ideas that may come across as the new investment method, his tried and true investment approach over many decades has continued to prove to be a winning strategy.
Buy good businesses at the right price and hold…..
At Ethical Offshore Investments, there are a few managed funds that follow this very strategy. Fundsmith Equity Fund for example who quote their investment objective on their fact sheet: Just a small number of high quality, resilient, global growth companies that are good value and which we intend to hold for a long time, and in which we invest our own money.
This strategy has resulted in an average annualised return of 16.9%pa over the past 10 years for Fundsmith Equity investors.
Clients of Ethical Offshore can get access to the Fundsmith Equity fund without incurring any upfront costs and will be allocated to the lowest charging version of the fund available on the relevant platform.
Investors can also get direct access to the strategies of Warren Buffet through investing in Berkshire Hathaway shares (BRK.B:NYSE) through the various flexible Offshore International Platforms and Life Company Portfolio Bond policies available with Ethical Offshore. Once again, we do not charge or receive any commission on placing these investments.
If you are interested in investing like Warren Buffet, click the More Information button and we will contact you personally.
Please note that this should not be conceived as individual investment advice and a recommendation to invest in the mentioned funds. Please speak to Ethical Offshore Investments (or your personal adviser) BEFORE you make any decision on investing in these funds to make sure that these investments are appropriate for your personal investment objectives.
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