Don’t panic: invest like Buffett

Like Warren Buffett, investors should never abandon the shares ship

Don’t panic: invest like Buffett

So the Conservatives will form the next Government: markets will rise on the news.

Still, short term euphoria could eventually give way to fears that the UK  may leave Europe and that Scottish independence will lead to a break-up of the UK.

Regardless of the election result and the short-term market movements it causes over the ensuing weeks and months, investors should attempt to look through this and focus on the fundamentals.

If at any stage markets do fall sharply over the next few months rushing for the exit and taking a loss on holdings could prove to be a costly mistake.

Indeed, a market fall could present some great buying opportunities for those brave enough. As value investor Warren Buffett famously said:

“Long ago, Ben Graham taught me that ‘Price is what you pay; value is what you get.’ Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”

Alternatively, a steadily rising market may present a great opportunity to exit some of your more speculative holdings with your head held high, clutching a fistful of profits.

Generally though, as our Guide to Investing in Shares points out, market timing is incredibly difficult to pull off.

Economic situation

Like Professor Steve Keen, I’m generally bearish on the short term economic situation and certainly fear that the proposed ‘austerity-heavy’ economics of Conservatives will cause another recession.

That said, I’m very positive about innovative, businesses in global growth markets that I’ll hold whatever happens.

Fear not

So we investors need to show some backbone. After all, the UK survived two world wars – can you imagine what our ancestors would have thought about our tendency to panic about a little market volatility?

We should also remember that, over the long term, investing in equities has paid off.

But I’ll let Buffett have the last word, as he’s the expert investor:

“Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a fly epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”

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Categories: Viewpoint

About Author

Christopher Menon

Every Investor Editor Chris Menon is a financial journalist who has written regularly for national newspapers, magazines and websites about personal finance, with particular emphasis on investing.

  • Serenity Stocks

    Benjamin Graham – also known as The Dean of Wall Street and The Father of Value Investing – was a scholar and financial analyst who mentored legendary investors such as Warren Buffett, William J. Ruane, Irving Kahn and Walter J. Schloss.

    Warren Buffett once wrote a detailed article explaining how Graham’s record of creating exceptional investors (such as Buffett himself) is unquestionable, and how Graham’s principles are everlasting. The article is called “The Superinvestors of Graham-and-Doddsville”.

    Buffett describes Graham’s book – The Intelligent Investor – as “by far the best book about investing ever written” (in its preface).

    Graham’s first recommended strategy – for casual investors – was to invest in Index stocks.
    For more serious investors, Graham recommended three different categories of stocks – Defensive, Enterprising and NCAV – and 17 qualitative and quantitative rules for identifying them.
    For advanced investors, Graham described various “special situations”.

    The first requires almost no analysis, and is easily accomplished today with a good S&P500 Index fund.
    The last requires more than the average level of ability and experience. Such stocks are also not amenable to impartial algorithmic analysis, and require a case-specific approach.

    But Defensive, Enterprising and NCAV stocks can be reliably detected by today’s data-mining software, and offer a great avenue for accurate automated analysis and profitable investment.

    Thank you.