6 tips from Warren Buffett for investors when the market is unstable

BlogAugust 16, 2021

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Veteran investor Warren Buffett is considered the greatest investor in history. He often shares with people the wise business secrets that have brought him wealth.

6 tips from Warren Buffett for investors when the market is unstable

In this article, check out his 6 tips for investors when the market is volatile.

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1. Prevention of inflation

“Inflation is like a giant parasite in the economy. Due to inflation, businesses next year have to spend more than the previous year on accounts receivable, inventory and fixed assets.

This comparison was made by Warren Buffett in his 1981 letter to shareholders. He called inflation “a tax on capital” and made businesses reluctant to invest.

Inflation figures in the US are trending up and hitting a 13-year record, so investors need to look for assets that can withstand a high price environment.

One example is billionaires like Bill Gates who have recently invested in farmland. Agriculture is sustainable and profitable because no matter what state the economy is in, everyone needs food.

Gold and real estate have also been historically good inflation hedgers.

2. Eliminate the crowd mentality.

“Most people are interested in stocks when others are excited. They should be interested in stocks when others are not. You can’t buy stocks with everyone expecting a profit. unsurpassed profits”.

According to a study by Bank of America in April this year, in the period from November 2020 to March 2021, up to 576 billion USD flowed into equity funds, much higher than the total amount of 452 billion USD. in the previous 12 years.

According to Yahoo Finance, whether you are new to investing or have a lot of experience, going against the crowd is often a safer strategy.

As we saw during the meme stock rush of early 2021, blindly following the crowd often leads to financial disaster. Instead of focusing on popular names, prioritize the safety and stability of your investment.

If investors are not confident in their ability to choose a target to lose money, they can ask for help from online applications. Depending on risk appetite and return goals, an investor can build a diversified portfolio.

3. Prepare your portfolio for every situation

“The biggest thing people have learned is that this pandemic will happen sooner or later, and it’s not the worst scenario imaginable. Society is very poor at preparing for difficult scenarios. but it will happen sooner or later”.

In an interview with CNBC mid-2021, Warren Buffett talked about society’s lack of preparation for emergencies. COVID-19 has had an “extremely disparate” impact on different groups of people in the economy.

As an investor, the best way to prepare for any scenario is to diversify your portfolio, spreading your money as wide as possible.

Warren Buffett is known as an index fund fan and once advised most investors to invest in an S&P 500 index fund, buying this fund certificate means diversifying their money over 500 stocks.

4. Volatility is an investor’s friend

“A true investor will gladly welcome volatility. A frenzied bull market means there will be times when good stocks sell for bargains.”

Investing is like riding a roller coaster. Rise and fall are indispensable experiences. No one knows with 100% certainty when the market will go up or down. If you invest long enough, you will find that there are periods lasting weeks, months or even years where an investor’s account is only known to lose.

However, as Buffett said in the quote above, when the market is on fire, you have the opportunity to buy quality stocks for cheap.

The reality is that investors who bought during the raging pandemic have made big profits. Conversely, those who withdraw and stay on the sidelines are probably regretting their decision.

5. Buy at the right price

“Whether it’s buying clothes or stocks, I wait until the price drops.”

The frugality is in the blood of Warren Buffett, who has a fortune of hundreds of billions of dollars but still eats breakfast at McDonald’s, drinks Coca Cola and lives in a house he bought in 1958.

In investing, Warren Buffett controls $140 billion of Berkshire Hathaway’s cash, but he doesn’t waste money buying stocks everywhere. He is always patient, waiting for good businesses with reasonable prices to buy.

Investors can learn from Buffett by making a watchlist of notable businesses and patiently waiting for a good opportunity to buy.

The US stock market is currently reaching historic highs continuously, and inflation is also causing many concerns. The time for investors to put down money may not be far away.

6. Always think about the long term, even when the budget is tight

“No matter how hard you work and how talented you are, sometimes you still have to wait. If you want a child, you must be pregnant for 9 months. Making 9 women pregnant at the same time cannot create children in one time. month “.

The message behind this funny comparison is this: In investing, there is no tool more powerful than time. According to Yahoo Finance, many studies show that investors are becoming increasingly impatient, constantly buying and selling many stocks that once predicted the market.

Instead of worrying about the short term variable, investors should think about the term. The most historically proven and right length investing strategy is to buy stocks in good businesses at a fair price and hold them for a while.

You don’t have to be a billionaire like Warren Buffett to apply this type of investment, just monthly savings is enough. With enough time, discipline and mastery of the principles that Warren Buffett shares, success will be within the reach of every investor.

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