The Motley Fool

Should we follow Jim Cramer and buy shares now like Buffett? Here’s what I reckon

Last week, CNBC’s Jim Cramer trotted out Warren Buffett’s well-known advice to be greedy in the stock market when others are fearful and fearful when they are greedy.

In other words, if everyone’s mad about shares and valuations are high, Buffett tends to avoid buying. But when the market’s in panic mode, such as right now, Buffett tends to find good-quality companies selling at modest valuations and he fills his boots with their shares.

Claim your FREE copy of The Motley Fool’s Bear Market Survival Guide.

Global stock markets may be reeling from the coronavirus, but you don’t have to face this down market alone. Help yourself to a FREE copy of The Motley Fool’s Bear Market Survival Guide and discover the five steps you can take right now to try and bolster your portfolio… including how you can aim to turn today’s market uncertainty to your advantage. Click here to claim your FREE copy now!

Not an exact science

However, as Cramer pointed out, Buffett’s approach isn’t an exact science. For example, on 6 October 2008 in the middle of the bear market, Buffett had an article published in the New York Times. Essentially, that piece said he was in the market and buying stocks. But the Dow Jones Industrial Average plunged a further 25% after that.

Indeed, timing the market is difficult, and even investment greats such as Buffett don’t try to do it. He’s known for making his purchases based on his perception of the value he’s getting for his money and not because of the absolute level of a share price.

And he’s doing very well with that investing strategy. Indeed, according to FactSet, the Dow rose by just over 300% in the years following his call to invest. Despite first falling a bit, it seems he was right to buy into the weak stock market back then.

Nuanced advice from Cramer

Meanwhile, Jim Cramer is making a similar call today. His starting point is that he thinks the stock market will eventually continue its upward trajectory following the coronavirus turbulence, regardless of how long the volatility lasts. However, the one-time hedge fund manager’s advice is a little more nuanced than Buffett’s simple ‘buy stocks’ call of 2008.

Cramer believes cash is king, for example. By citing the Buffett example, he’s underlined how difficult it is to guess where the bottom of the market might be. So he recommends buying on the way down by investing money in parts. And then we’ve got to tough it out through the inevitable near-term gyrations in the markets. But the prize will be delayed gratification as markets ‘normalise’ later, he reckons.

He detracts from Buffett’s ultra-long-term approach of today by saying: “If you want to sell some stock in the next bounce, and there will be a next bounce like we had [last Wednesday], you have my blessing.” I reckon such an approach shouldn’t be anathema to long-term investors. It’s worth remembering that Buffett himself made his first million or so in the stock market with a shorter-term trading strategy. Indeed, he bought good value when he saw it and sold out quickly when the value had been ‘outed’, or simply because he saw even better value elsewhere, or because he had big profits and wanted to crystallise them.

I think drip-feeding money into the markets is a good idea. But let’s be careful and pragmatic about how we do that. Cramer said: “While I don’t actually think that we’re all that close [to a bottom] if things keep getting bad, I also don’t want to wait too long to put that cash to work.” I’ll leave you with that thought.

Are you prepared for the next stock market correction (or even a bear market)?

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!

Click here to claim your free copy of this Motley Fool report now.

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.