As if 2020 hasn’t been challenging enough, the forthcoming US election could bring forth another wave of volatility in the markets. Even so, I think all UK investors should take the battle between Donald Trump and Joe Biden in their stride. Learning to think like master money-maker Warren Buffett will definitely help.
Buffett’s first rule
Buffett’s first rule of investing — “never lose money” — is good all-weather advice. As such, I think it’s likely the ‘Sage of Omaha’ will continue to recommend that all investors should do their homework, regardless of who might win the US election. The more you know about a company before buying its shares, the better your chances of making money.
Gambling with your cash based on the outcome of events, however tempting, isn’t advised. This is partly why the wealthiest investor on the planet doesn’t have a TV in his office. Not being hooked up to the 24/7 newsflow allows him to concentrate on the things that truly matter. The businesses he buys stakes in.
Buffett’s first rule has an additional meaning for those investing in the UK. By not keeping your shares within an ISA, you will lose money by virtue of paying capital gains tax on any profits you make. To make matters worse, you’ll also be taxed on any dividend income you receive from stocks you own. This double-whammy could really hurt your chances of ever making it to millionaire-status.
Keep buying wonderful companies
Buffett buys shares in quality businesses when they go on sale. The coronavirus crash earlier in the year was an excellent example of when, to parphrase the great man, “we should all have been greedy rather than fearful.” The forthcoming US election could be another.
Great companies are likely to remain great. This is regardless of who emerges triumphant and whatever decisions they make during their presidential term. Sure, increased regulation of big tech giants, or the resumption of the trade war between the US and China, could make investors temporarily skittish. But the major themes of investing in the years ahead are unlikely to be affected.
Companies specialising in clean energy sources, for example, are very likely to remain popular, given the ongoing concerns around climate change. Demand for healthcare will also continue to rise as populations age. The need for cybersecurity will increase as the amount of ‘smart’ stuff in our homes grows.
None of the above will be impacted by who gets the keys for the White House. Invest accordingly.
Market commentators will continue to speculate over what a second term for Trump, or a first for Biden, will mean for global markets. The truth is, it really shouldn’t matter to ISA investors buying shares for the long term.
Buffett has frequently said that his favourite holding period is “forever.” Earlier this year, he also remarked that “nothing can stop America when you get right down to it.”
So far, he’s been absolutely right. Pull up a chart of the S&P 500 index over the last 50 years, or so. You’ll see a line rising from the bottom left to the top right. In other words, US stocks have gained massively in value, regardless of all the Republican and Democratic leaders over that time.
Don’t fear any US-election volatility. Do the same as Buffett. Embrace it.