Tips From Warren Buffett on Weathering a Market Downturn
It’s not about the market, it’s about you
Sorry to break it to you but the current bear market in stocks isn’t really the biggest problem you face — you are. As Buffett has noted, “Success in investing doesn’t correlate with IQ … what you need is the temperament to control the urges that get other people into trouble in investing.” The second half of that sentence is, perhaps, the most important thing you will ever be told about investing.Markets go up and markets go down, it is how you react that will make the difference over the long term
Admit your limitations
The second quote from Warren Buffett is in the same behavioral finance realm as the first, but far more specific: “There is nothing wrong with a ‘know nothing’ investor who realizes it. The problem is when you are a ‘know nothing’ investor but you think you know something.”This quote actually speaks to a common bias for humans to be a little too confident in their abilities.
Stick to your strengths
As if on cue, Buffett’s folksy wisdom provides us another valuable nugget to follow: “Never invest in a business you cannot understand.” Sounds silly, but it really isn’t.There are a lot of stocks in the world and each one has a different story behind it. Every industry comes with its own set of nuances. And each country involves a unique set of factors that change the risk/reward equation in sometimes surprising ways.
Investing is like baseball, but not
If you read quote three and felt a little uneasy because limiting your investment sphere might mean missing out on a great investment opportunity, don’t. Buffett has some advice to offer: “The stock market is a no-called-strike game. You don’t have to swing at everything — you can wait for your pitch.”Markets rise and markets fall, and there’s a whole lot that goes on in between
Limit your decisions
Buffett is so adamant that investors don’t try to do too much, that he has an even more specific quote on the issue: “An investor should act as though he had a lifetime decision card with just twenty punches on it.”It is hard to imagine any investor only making 20 investments in a lifetime. That’s doubly true if he or she actually enjoys the act of investing.