No one can deny that the past month or two has been a rough ride for UK-based investors. A global economic slowdown, the coronavirus and Brexit have all weighed heavily on the markets.
In times like these, I like to look at a successful investor’s past, to see how they have benefited from a turbulent market.
Warren Buffett made much of his wealth in recessions and market crashes. For him, tough times are an opportunity to buy shares in quality companies at a reduced price.
As he has said in the past: “Be fearful when others are greedy. Be greedy when others are fearful.”
Looking at the recent performance of the FTSE 100 and the FTSE 250, it seems many people are currently fearful, so now could be the time to be greedy.
It takes tremendous bravery to put your savings into the market when others are pulling theirs out.
Take September 29 2008, when the Dow Jones lost almost 7% (that is, $1.2trn) in a day. But at the same time, Buffett — through Berkshire Hathaway — was buying big.
Of course, he did not underestimate the enormous severity of the market crash, calling it an “economic Pearl Harbour”.
However, Buffett saw that this was a great time to buy heavily discounted stocks and despite the short-term pain in the market, he had confidence that in the long term the market would continue to grow. He was right.
It is clear that during this time, he stuck to his investing principles, buying well-managed companies with a strong track record and an economic moat, and avoiding heavily-leveraged businesses.
At the time, Berkshire Hathaway picked up cheap banking stocks, like Bank of America and Goldman Sachs. Reportedly, when Goldman Sachs redeemed its preferred shares, it made Berkshire Hathaway $3.7bn.
This strategy is not without risks, especially for smaller investors. Putting your hard-earned savings into a business that is losing value daily is a bold move.
The stock price can go lower. I would say that rather than trying to buy at the lowest price possible, you only need confidence that you are buying stock in a good quality company. The hope is that in the long term, its price will increase. Remember, “price is what you pay, value is what you get”.
If you lack the nerves to individually stock-pick during a turbulent market, there could be another solution.
A simpler trick
Rather than buying individual shares, and putting all your eggs in a few baskets, I would invest regularly in a low-cost index fund as an easier answer. It is a strategy that Warren Buffett has recommended in the past.
Buying into an index fund is a passive form of investing. The fund will own stocks representing all of the firms in a chosen index and aims to match its returns. For example, owning a FTSE 100 index fund gives you a slice of the UK’s top 100 listed companies.
And by investing at regular intervals, you will be purchasing shares during the highs and lows of the market.
Currently, I would carry on investing money into a FTSE 100 or FTSE 250 index tracker, even though the market appears turbulent. I remain confident that given time, the market will still grow, hopefully making us all richer in the process!
It’s official: global stock markets have been on a tear for more than a decade, making this the longest bull market in history.
But this seemingly unstoppable run of success poses an uncomfortable question for investors: when will the current bull market finally run out of steam?
Opinions are split about whether we’re about to see a pullback — or even a bear market — in 2020. But one thing is crystal clear: right now there’s plenty of uncertainty and bad news out there!
It’s not just the threat posed by the coronavirus outbreak that could cause disruption — Trump’s ongoing trade-war with China and the UK’s Brexit trade negotiations with the EU rumble on... and then there’s the potential threat of both the German and Japanese economies entering recession...
It all adds up to a nasty cocktail with the potential to wreak havoc and send your portfolio into a tailspin.
Of course, nobody likes to see the value of their portfolio fall, but fortunately, you don’t have to go it alone. Download a FREE copy of our Bear Market Survival Guide today and discover the five steps we believe any investor can take right now to prepare for a downturn… including how you could potentially turn today’s market uncertainty to your advantage!
T Sligo has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short March 2020 $225 calls on Berkshire Hathaway (B shares). 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.