Down, up, then down again. It would not be surprising if investors have been made dizzy by the gyrations of the stock market.
All the volatility makes it difficult for many to know what to do. Should they buy shares? Should they wait?
In times like these, it would be good to take advice from one of the world’s greatest investors: Warren Buffett. Of course, the billionaire is not a personal financial advisor. However, we don’t have to look far to find out what he was likely to say. This is what Buffett would probably recommend investors do right now.
We really don’t know for sure how Buffett himself is investing right now. Our best image is what Berkshire Hathaway (BRK.A 0.75%) (BRK.B 0.96%)the conglomerate he heads, did so in the second quarter of 2022. In the second quarter, Berkshire bought nine shares and sold six shares.
But Buffett probably wouldn’t tell you to mimic what he’s doing anyway. To my knowledge, he never encouraged other investors to copy his moves. However, he has given very specific advice in the past.
In Buffett’s 2013 letter to Berkshire Hathaway shareholders, he wrote about how he and his business partner Charlie Munger evaluate the stock. However, after this discussion, he pointed out that most investors don’t need to do what he and Munger do.
Buffett rightly noted, “Corporate America has on the whole done wonderfully over time and will continue to do so (albeit unpredictably, no doubt).” He stated that non-professionals should simply invest in a cross-section of businesses and that “a cost loss S&P 500 An index fund will achieve this goal.” An index fund, as the name implies, simply owns all of the assets in the index it is trying to track.
How serious was Buffett about this recommendation? He even put similar instructions in his will on how his money should be invested for the benefit of his family. Buffett revealed that his will stipulates that 90% of the money must be invested in a low-cost S&P 500 index fund with 10% in short-term government bonds. He suggested Vanguard, which operates the Vanguard 500 Index Fund ETF (VOO 1.10%).
What happens with time?
But would Buffett think buying an S&P 500 index fund like Vanguard’s would be the best thing to do right now? After all, as we discussed earlier, the market is really volatile. I think the answer to this question is a resounding “yes”.
First, Buffett has not been shy about buying shares for Berkshire’s portfolio in times of high market volatility, including this year. Of course, he has been selective about which stocks to buy. However, investing in an S&P 500 index fund doesn’t require the kind of analysis that Buffett and his team do before buying stocks.
We can also look back at what Buffett said about the timing of investments. He wrote in 2013, “The ‘when’ [of investing] is also important. The main danger is that timid or beginning investors enter the market at a time of extreme exuberance and then become disillusioned when paper losses occur.”
There is certainly no reason to worry about “extreme exuberance” at this point. However, even if that were the case, Buffett has an answer. In the 2013 letter to Berkshire shareholders, he stated: “The antidote to that kind of bad timing is for an investor to accumulate stock over a long period of time and never sell when the news is bad and stocks are well below their highs.” “.
In other words, Buffett’s recommendation would probably be to buy an S&P 500 index fund now and continue to buy regularly. The most important caveat is that you should not sell in an attempt to avoid a loss.
Buffett told Berkshire shareholders in 2013 to “ignore the babble” and “keep your costs to a minimum.” Investors who did so, he argued, would be “virtually certain of satisfactory results.”
He was correct. Historically, the approach Buffett recommended would have made investors a lot of money. The S&P 500 has experienced recessions in the past, but has risen significantly over the long term. If you’re looking for some good advice on what to do in today’s volatile market, you probably can’t go wrong by listening to the Oracle of Omaha.
Keith Speights has positions in Berkshire Hathaway (B shares) and Vanguard S&P 500 ETFs. The Motley Fool has positions and recommends Berkshire Hathaway (B shares) and Vanguard S&P 500 ETFs. The Motley Fool recommends the following options: Long $200 January 2023 Call Options on Berkshire Hathaway (B-Shares), Short January 2023 $200 Put Options on Berkshire Hathaway (B-Shares), and Short $265 Call Options on Berkshire Hathaway (B-Shares). January 2023 in Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.