Warren Buffett gave a three-hour interview with CNBC’s Becky Quick on Monday. That right there tells you something about where we are in this stock market beatdown.
Buffett never marks a bottom, but he does surround them. That is, we hear from him after a lot of damage has been done, and then we’ll hear from him again fairly soon after the markets have bottomed.
Of course, we won’t get any real actionable specifics, just his typical down-home observations, like “stocks go up over time” and “people should want to buy when stocks are cheaper.”
It’s a solid bet that anytime Buffett starts jawboning, there is action underlying his comments.
We won’t have any specifics about stocks that Berkshire Hathaway may have bought recently for another quarter or so. Though he did say his firm had bought more Bank of America (NYSE: BAC) and sold Wells Fargo (NYSE: WFC) at the end of last year.
Incidentally, I have marveled at the devotion he has shown to Wells Fargo over the last decade. Despite being a complete disaster for 10 years, it has remained one of Berkshire’s largest holdings.
That’s another reason why the fact that Buffett speaks in generalities is actually a good thing. The specifics of what he buys aren’t that helpful to the individual investor. It’s the methodology and perspective that we can all benefit from.
What You Can (And Should) Learn From Uncle Warren
First and foremost, Buffett doesn’t try to time the market — as in, wait for a bottom, and then pounce. Instead, he uses a form of dollar-cost averaging…
Stocks get whacked, he buys some. Stocks get whacked some more, he buys some more. Stocks rally after crisis du jour ends, he buys some more.
Inevitably, a couple years down the road, every single one of those buys looks fantastic.
Take note. If you do your homework and buy a great stock today, and that stock is down tomorrow, does that mean you made a mistake?
OF COURSE NOT!
But are you going to look at your account and think, wow I should’ve waited till today?
OF COURSE YOU ARE!
It’s human nature. And you should fight that impulse with every fiber of your being. Why? Because ultimately, investing isn’t about the economy, the president, oil prices, or anything out there. It’s about you and how you’re going to behave in different situations.
If you’re impulsive, you’re going to buy news-driven rallies that tend to fade or reverse (I can’t believe I got suckered like that).
If you’re too cautious, you’re gonna miss golden opportunities (I knew I should’ve bought that stock).
Totally different behaviors, same result — you are now questioning your competence. And that is simply not gonna do you any good.
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The stock market is going to lay bare every single personality flaw you have. I don’t know a single successful investor who hasn’t had to do some serious soul searching. So, it’s not just you, and welcome to the club!
Another thing, you’re not gonna see any momentum/growth stocks on Buffett’s crisis buy list. He’s gonna buy “great companies at a good price.” That means solid, established companies that are suddenly on sale. Think Nike (NYSE: NKE), Visa (NYSE: V), Lowe’s (NYSE: LOW) — that kind of stock.
That’s his style; it may not be your style. You may not even know what your style is. But I’d urge you to find a style that suits you.
PRO TIP: A lot of times, it’s easiest to find your style by declaring what you aren’t. Start to write the Great American Novel and I guarantee you’ll fail. Start writing a simple detective story where there are infinite examples you can draw from and you just might stand a chance.
Flexible Conviction
I know it’s a blatant contradiction, but you have to be able to suffer the slings and arrows and also change your mind when there’s new information.
Aaaand you’re pretty much on your own with that one. I don’t have any pro tips for that. But, come to think of it, I do have an example…
In Monday’s Wealth Daily, I said “You gotta sell oil stocks and small banks, too.” Funny, I thought I said something about not buying big banks, too, like JPMorgan and Bank of America (NYSE: BAC). But I see that my poor brain is having trouble keeping up… anyway…
Bank of America has been crushed back to 2016 levels.
Could it go lower? Yep. Should you buy some anyway? Yep.
The bank is trading below book value, with a PEG of 1. Both trailing and forward P/E are under 10. Of course, that forward P/E is likely to change because earnings estimates are likely to get lowered, but I don’t care…
Buy some BAC shares anyway, and then don’t look at your account for a couple days.
And if you really want to make Uncle Warren proud, my favorite 5G stock is down 20% over the last seven days. But, I don’t think 5G has been cancelled. 5G remains perhaps the biggest market catalyst for the next two years — probably a good time to buy some, while most investors’ attention is focused elsewhere…
Until next time,
Briton Ryle
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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.
