Warren Buffett’s incredible track record of market-beating success as CEO of Berkshire Hathaway is proof that he knows how to handle bull and bear cycles. If you’re on the hunt for long-term investment opportunities that can lay the foundation for strong gains down the line, following the wisdom and strategies that have served the Oracle of Omaha so well through the decades could pay off in a big way.
Investors have had to contend with bearish pressures shaping the broader trading backdrop over the last year, but the good news is that the next bull phase is somewhere on the horizon. With that in mind, read on for a look at four Warren Buffett quotes to live by as you make investing moves this year.
“The best chance to deploy capital is when things are going down.”
Buy low, sell high. This age-old aphorism sums up the core goal of investing. Accordingly, it makes sense to build positions in stocks on the heels of valuation pullbacks or amid general market uncertainty. Turbulent market conditions often present the best buying opportunities.
Of course, approaching things this way is often easier said than done. The feeling of losing something is a powerful psychological sensation, and people tend to feel the pain of a loss much more than they the feel pleasure of a win. If you recognize and push through the market’s penchant to fixate on fear during times of uncertainty, you can take advantage of opportunities that will position you to generate lasting wealth.
“Never invest in a business you can’t understand.”
Bear market conditions can present great buying opportunities for investors — but that doesn’t mean it’s smart to throw cash around indiscriminately because stocks have seen big valuation pullbacks. Putting money behind businesses you have little to no understanding of is a great way to take on unneeded risk and set your portfolio up for underperformance.
That doesn’t mean you have to avoid investing in a company unless you have an encyclopedic knowledge of all of its various complexities. If you asked Buffett to explain the inner workings of Apple‘s iPhone, he might not be able to explain its processor, display hardware, or connectivity chips in granular detail. But he could tell you about Apple’s brand strength and competitive moat, why the company’s core products and services are so fantastically profitable, and why he and his portfolio managers have positioned the tech company as Berkshire’s largest stock holding.
When the next hit bull market hits, the rising tide will lift most (if not all) boats — but having a good understanding of the companies you put your money behind will put you in a much better position for investing success.
“Price is what you pay. Value is what you get.”
Price and value won’t always be the same. In fact, unless you wind up buying and selling a stock at exactly the same price in a very short window of time, these two things will naturally diverge for investors. In order to identify stocks that will put them on the right side of that divergence, Buffett and other value-oriented investors aim to find instances where the intrinsic value of a business is below its price.
Look for companies that trade at prices that leave room for value to be unlocked. And it pays to take a judicious, quantitative approach to identifying these opportunities. Beyond asset-based valuation analysis and the use of metrics including price-to-earnings and price-to-sales ratios, using a discounted-free-cash-flow (DCF) analysis can help investors identify stocks with attractive risk-reward profiles.
“If you’re not willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”
Buffett’s long-term investing approach has served Berkshire Hathaway well through the years. Beyond smoothing out the risks posed by unpredictable twists and turns for the broader market, focusing on stocks that are worth owning for the long haul will force you to narrow in on quality companies that have real competitive advantages and the ability to unlock value over time.
Predicting the future is incredibly difficult. No one can tell you with certainty what the stock market will do over the next month. There are too many variables to account for. On the other hand, there’s plenty of evidence that investors can generate wealth by backing strong businesses and letting things play out over long time horizons.
As the saying goes, time in the market beats trying to time the market. Buffett’s incredible success is a testament to what’s possible when you focus on finding great companies and letting time in the market work for you. It’s an approach that’s worth replicating in preparation for the next bull run.
Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.