Image source: The Motley Fool
In his letter to the shareholders Berkshire HathawayIn the year of S&P 500Including dividends, it is down 37 percent. Was the Omaha speech panicking and draining the portfolio? no.
Stock markets often go up
The 2009 letter shows a chart of the annual performance of the S&P 500 from 1965 to 2008. Profits were made in three-quarters of those years. Warren Buffett predicts that the next 44 years will be the same amount positive. However, he stressed that he cannot predict which years will be winners and which will be losers. So, whether times are good or bad in the market, he and partner Charlie Munger focus on four goals for their portfolio:
- Buy quality stocks that generate a lot of money with good liquidity and leverage
- Invest in businesses that have and can sustain a competitive advantage, i.e., they have “moat”.
- Find, develop and support businesses with the best management teams
- Continue to buy quality trading stocks with competitive advantages with good management behind them when they are available at high prices
This investment approach does not cause the market to move up or down. What a difference it makes No Shares are available at high prices.
Mr. Market
In the year A 1987 letter to Berkshire Hathaway’s shareholders cites a story told by Warren Buffett’s friend and mentor, Benjamin Graham. Mr. Marquette is a curious man. He comes daily to buy and sell stocks for you. Sometimes he quotes very high prices, sometimes, he feels low, and he quotes rock-bottom prices. His prices often don’t seem to match the quality of what he sells or buys. The trick is to realize that Mr. Market can be sent without a transaction with him.
An investor should not be guided by Mr. Market’s ticker tape. Investors need to determine the price they are comfortable with buying a quality, relatively leveraged stock with great management. If Mr. Market comes along one day and offers to sell such a company below that price, his hand will be bitten, but if not, Mr. Market will be back tomorrow.
Warren Buffett is greedy… sometimes
Perhaps the most famous quote from one of the world’s greatest investors is:
Be greedy when others are greedy, and when others are afraid.
Warren Buffett, Berkshire Hathaway, Inc. Chairman’s Letter, 1986
This quote means that the time to load up on shares in exciting businesses and feed greedily is exactly when others are panicking, and the market is slowing down. That’s when Mr. Market can offer prices below the intrinsic value of the business, which is calculated based on long-term potential.
So Warren Buffett probably didn’t do anything different than when the market crashed. But it can do a little more. Because market crashes are an opportunity to buy stocks you want to own at low prices.