Why You Should Navigate, Not Predict, The Stock Market

Warren Buffett has a trick for getting your money’s worth out of the stock market, which he says is a skill “you can learn in fourth grade,” even though “it’s not taught in schools.”

At Berkshire Hathaway’s annual shareholder meeting on Saturday, Buffett recommended not obsessing over finding the perfect time to buy shares. Rather, the Berkshire Hathaway CEO said, go ahead and invest, and then watch the stock market over time to see if he should buy more of that company’s stock or sell it.

Buffett said he, his longtime business partner Charlie Munger and other Berkshire Hathaway executives have long used this strategy because it has a higher probability of return and relieves some of the pressure of trying to predict the stock market. If a stock’s value falls after you buy it, Buffett noted, that means your stock has become less expensive, so buy more.

“We have absolutely no idea what the stock market is going to do when it opens on Monday,” Buffett said. “We haven’t been good at timing. We’ve been reasonably good at determining when we got enough for our money.”

Using this strategy to navigate the stock market rather than trying to predict it, Buffett said, is almost like having an insurance policy in an often volatile market. Twice, he said, he had tried to forecast the market in advance: once in 2008 during the Great Recession and again in March 2020 before the Covid-19 pandemic paralyzed global markets.

Those decisions cost Berkshire Hathaway billions of dollars, he said.

“We were bullish in 2008 when the whole world was down,” Buffett noted. “We spent a huge percentage of our net worth at a very dumb time. We spent about $15 or $16 billion, which was a lot bigger for us back then than it is now.”

Buffett attributed the navigation strategy to the success of Berkshire Hathaway: The company has a market capitalization of $704.29 billion, as of Tuesday morning. By extension, the strategy would also be responsible for Buffett’s status as a billionaire. The 91-year-old currently has a net worth of $115.2 billion, making him the sixth-richest person in the world, according to Forbes.

Another billionaire has apparently followed a similar playbook: Tesla and SpaceX CEO Elon Musk, currently the world’s richest person. On Sunday, Musk tweeted a well-known investment tip: “Buy stock in various companies that make products [and] services you believe in. Only sell if you think your products [and] services tend to get worse. Don’t panic when the market does.”

“This will serve you well in the long run,” Musk added.

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