Recent turbulence in the stock market might make some novice investors nauseous, but veterans like Warren Buffett remain unfazed.
During his recent meeting with Berkshire Hathaway shareholders, the 94-year-old Oracle of Omaha downplayed the market’s volatility.
“What's happened in the last 30, 45 days, 100 days, whatever you want to call it, it's really nothing,” he said.
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Here’s why the world’s most famous investor isn’t unnerved by recent swings in the stock market and why he believes we could see a “hair-curler” in the future.
Berkshire has lost 50% of its value before
While headlines might convince some investors the markets are ablaze, for Buffett it’s just a minor bump in the road. After all, the Oracle has been actively investing in stocks since the age of 11 in 1941, and has much more historical context than the average novice investor.
Over the course of his career, Buffett said he’s seen his company, Berkshire Hathaway, lose roughly half its value on at least three separate occasions.
For context, he’s lived through the Second World War, the Black Monday stock crash of 1987, the Dot-Com bust in 2001, the Great Financial Crisis of 2008, and the recent pandemic.
After roughly eight decades of picking stocks amidst these swings, nothing fazes him anymore. “However many years I've been old enough to trade stocks — 17 or 18,000 days — there's been plenty of periods that… just are dramatically different [from] this,” he quipped.
However, the Oracle insists young investors with limited experience should adopt a similar approach. “If it makes a difference to you whether your stocks are down 15% or not, you need to get a somewhat different investment philosophy,” he recommended.
“The world will not adapt to you, you have to adapt to the world. You will certainly see a period in the next 20 years that will be a hair-curler compared to what you've seen before. The world makes big, big mistakes sometimes.”
If you’re worried about that upcoming hair curling crash, here’s how you can prepare for it like Buffett does.
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Shock-proofing your portfolio
Market crashes and volatility are inevitable. Which is why sophisticated investors like Buffett embrace the volatility and structure their portfolio to sail through turbulence.
For instance, Buffett’s portfolio has always been remarkably well-diversified. According to his latest 13-F filing, Berkshire had 38 holdings in its publicly traded portfolio with the largest position being Apple (AAPL), which accounts for just 28% of the total value.
However, Berkshire is even more diversified when you consider all the private businesses Buffett has acquired over the years.
The Oracle also prefers to keep a healthy pile of cash on hand for buying stocks on discount when crashes occur.
In fact, according to his most recent filing, he had more in cash than stocks. Buffett’s cash pile is worth roughly $350 billion, according to MarketWatch. That’s a record-high and nearly 31% higher than the $267 billion value of his stock portfolio.
By simply diversifying your portfolio and keeping some cash on hand, you could be in a position to not just sail through market volatility but actually benefit from it. In other words, you can be greedy when others are truly fearful.
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
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