If you’re going to take investment advice from anyone, you could do worse than take it from the man considered to be the world’s most successful investor, the stock market genius who is fourth in the 2020 Forbes Billionaire’s List with a net worth estimated at a cool $76.3billion: Warren Buffett.
Back in February, the man dubbed the oracle of Ohama was interviewed on CNBC and gave some wise advice to stock market investors which might put things into perspective for the millions of investors who are fearful for their portfolios in the face of tumbling share prices in response to Covid-19 ravaging the globe.
At the time of writing (13th April 2020), there have been 1.85million confirmed cases of coronavirus around the globe and 114,272 deaths. By the time you read this, those figures, from the World Health Organisation, will undoubtedly have risen dramatically. Of course the biggest Covid-19 tragedy is the sad loss of so many lives, let’s not forget that. The economic impact is also being felt in a myriad of ways and investors, many of them ordinary people saving a nest egg to afford them a comfortable retirement, are afraid.
Mr Buffett, speaking as the pandemic was only just starting to take hold in the US, urged people to consider their investments in a different way, ignoring the short term noise and looking to the long term, stressing that buying shares is in fact the same as investing in a business, or, in the case of funds, businesses. He said:
‘Presumably if you buy a farm, if you buy an apartment house, if you buy a business you’re going to own for 10 or 20 or 30 years, then the real question is: Has the 10-year or 20-year outlook for American business changed in the last 24 hours or 48 hours? You don’t buy or sell your business based on today’s headlines.’
If your stress levels are rising as the value of your portfolio goes in the opposite direction it is worth reminding yourself that investing for your retirement is a long-term project and it may be many years before you will need to access your investments (if you’re on a shorter investment timeframe have a chat with your financial adviser).
While today’s headlines are full of doom and gloom you need to keep in mind that the mainstream media survives on delivering maximum impact stories that offer the audience drama, and plummeting stock prices fit the bill nicely. Those reports will only serve to fuel any feelings of panic you may have so switch off the television to avoid feeding your anxiety. Instead remind yourself that bulls will follow bears and the cyclical nature of markets has been proven time and time again.
When market conditions are tough, it’s also worth remembering another nugget from the mouth of Mr B:
‘Someone is sitting in the shade today because someone planted a tree a long time ago.’
Again, it highlights the fact that just as trees take time to reach maturity, successful investing is all about patience, time and looking to the long term. Slow and steady wins the race, even through the inevitable peaks and troughs of the market.
And a final piece of golden Buffett advice is this:
‘We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.’
If ever there was a time when investors were fearful it is now which means that for those with cash to invest, now is the time to ‘be greedy’ and look for profitable opportunities. Rather than follow the herd, who are making the all-too-common mistake of panic selling and locking in paper losses, seek out the opportunities that this unusual situation affords because you can be sure that they are out there. Buying stock while prices are subdued could mean bagging a bargain which results in bumper returns when normality is resumed.
And it’s worth reiterating that while it’s difficult to imagine normality returning right now, it will happen! Governments are taking remedial steps (low interest rates, temporary tax relief) to contain the damage and low oil prices also contribute towards creating positive conditions for an eventual economic recovery which will trigger a turnaround in financial markets. The IMF has already expressed cautious optimism about a recovery in China where the virus started and levels of economic activity and demand are slowly returning to normal. Chinese equities have been the best performing market year-to-date.
If you’ve been gripped by coronavirus-inspired panic and would like to discuss your investment strategy with us in more depth, please get in touch.
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