In the current stock market landscape, where everything seems to be a sea of red, investors might feel that they sometimes need to take a deep breath and meditate.
That’s because some of the former high-flying stocks have come crashing back down to the reality we find ourselves in – that of high inflation, rising interest rates and a war in Europe.
Yet when everything seems so dire, it’s important that we take stock as long-term investors and think hard about how we can navigate this tough period for stocks.
One of the most revered investors of the past few generations, who personifies the long-term time horizon, is Warren Buffett.
So, without any further ado, here are three smart (and timeless) Warren Buffett quotes that investors can learn from amid the current carnage in markets.
1. The market is emotional
Given that the market is emotional, it’s important that investors try not to follow suit. As Buffett said:
“Remember that the stock market is a manic depressive.”
Effectively, it means that the stock market is going to swing to the extremes in either direction. Whether that’s “euphoria” on the way up or “despair” on the way down, the market is rarely rational.
It’s of the utmost importance that investors remember that and focus on what’s important – the long term.
2. Cash is still trash over the long term
Outside of your emergency fund, holding too much cash in this environment can be damaging over the longer term.
Warren Buffett has always been emphatic about how important it is to invest, no matter what the stock market is doing:
“Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value”.
In other words, while cash may outperform in the short term versus stocks, the high-inflation scenario we find ourselves in means that the value of your cash is constantly being eroded.
So, for the novice or expert investor alike, it’s never a bad time to put your money to work – that’s particularly true when the market is falling precipitously.
3. Act like a business owner
While we all like to talk about being “long-term investors” when the market is going up, it’s much harder to stick to that ethos when stock prices are crashing.
That’s when we should take Warren Buffett’s insights into account. He said that:
“If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes”.
Investors should remember that they’re buying into a real business when they purchase a stock and, as a business owner, we should be willing to own that business for the long haul.
Stretch out your time horizon
While 2022 has so far been a horrible year for stock markets, it’s imperative that investors remember that stock markets always go up over the long term.
That’s perhaps no comfort right now, when everything is falling, but the lessons can offer us some valuable perspective on how we should view our investments through market drawdowns.