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Hold your nerve! Why Warren Buffett’s not selling his stocks and neither should we

Yesterday was a ‘red’ day in my share portfolio and it was probably that colour in yours too.

After all, the FTSE 100 dropped by about 3% and many shares on the London market were down. According to share-focused website ADVFN, only around 8% of all shares in the London stock market rose, with the rest either falling or remaining static – most plunged.

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It seems to me, the escalating crisis surrounding the Covid-19 coronavirus could be spooking the market. According to super-investor Warren Buffett, speaking on CNBC and cited by Reuters, “It is scary stuff.”

Economic effects

Indeed, the situation is fraught with human tragedy. According to the BBC, the World Health Organization has said the world should do more to prepare for a possible coronavirus pandemic.

The outbreak is starting to affect some companies’ trading results, at least in the short term. For example, Buffett’s own Berkshire Hathaway conglomerate has seen business dry up in China for its Dairy Queen fast-food division. Many of the 1,000 or so branches in the region are closed right now.

But it doesn’t stop there. Berkshire Hathaway owns more than 90 operating businesses including the BNSF railroad and Geico auto insurer, and Buffett said the coronavirus outbreak “has affected a significant number (of them).” Indeed, some London-listed firms trading abroad, or relying on supply chains in Asia, are starting to report issues arising from the restrictions being implemented to control the outbreak.

Long-term investors will “fare well”

However, despite the financial hit to his own businesses, Buffett peddles a familiar message for investors. He said the outbreak has not changed his long-term outlook and, “I don’t think it should affect what you do in stocks.” He reckons investors with a 10- to 20-year time horizon and focused on the earning power of companies “will fare well in stocks.”

We shouldn’t become caught up in daily headlines if we are long-term investors, he said. Now that stock prices have lowered, he reckons Berkshire Hathaway would “certainly be more inclined” to buy stocks than on Friday. And I reckon one thing is certain, he’s not selling up and running for the hills. Indeed, the opposite appears to be true. He’s probably blowing the dust off his watchlist right now and readying himself to pounce on his next stock opportunity.

There’s always something to worry about in the general economy and in the stock market, yet shares tend to climb that wall of worry over the long haul. I reckon one way of handling a stock market determined to retrace is to focus only on the news flowing from the companies behind your shareholdings, or those on your watchlist that you want to own shares in. If operations remain stable, the knowledge could encourage you to hold tight or buy.

For regular investors holding index tracker funds, it’s even easier, in my view – keep investing and allow pound-cost averaging to boost your returns later.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.