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Advice from Warren Buffet for Investing in Difficult Times

InvestorEducation / Learning to Invest Jul 05, 2008 - 12:12 PM GMT

By: Richard_Shaw

InvestorEducation

Best Financial Markets Analysis ArticleThere is an alleged ancient Chinese curse, “May you live in interesting times.”

While there is no historical proof of the origin of that curse, there is ample current proof in the securities markets that  we are living in interesting times. It's simply nasty out there — or at least it feels that way.


The image shows the year-to-date performance of six key asset classes:

  • US Total Stk Mkt (VTI)
  • Non-US Developed Stk Mkts (EFA) - excludes Canada
  • Emerging Markets (EEM)
  • US Equity REITs (VNQ)
  • Commodity Basket (DJP)
  • US Aggregate Bonds (AGG)

Commodities are up, REITs are up but rolling over, and everything else (stocks and bonds) is down.

That made us think about advice from Warren Buffet for difficult times.  Here are some of his comments that may be relevant as investors watch wilting portfolios:

Occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics is equally unpredictable, both as to duration and degree. Therefore we never try to anticipate the arrival or departure of either. We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.

Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful.

Our favorite holding period is forever.

If you are a professional and have confidence, then I would advocate lots of concentration. For everyone else, if it's not your game, participate in total diversification. The economy will do fine over time. … buy a cheap index fund and slowly dollar cost average into it.

We don't get paid for activity, just for being right. As to how long we'll wait, we'll wait indefinitely.

The stock market is a no-called-strike game. You don't have to swing at everything  –  you can wait for your pitch. The problem when you're a money manager is that your fans keep yelling, ‘Swing, you bum!'

Clearly, Warren Buffet did not mean that if you hold a poorly designed portfolio you should hold forever.  He means that if you used good judgement and had conviction when you invested, you should not be troubled by storms, which are always followed by sunshine.

By Richard Shaw 
http://www.qvmgroup.com

Richard Shaw leads the QVM team as President of QVM Group. Richard has extensive investment industry experience including serving on the board of directors of two large investment management companies, including Aberdeen Asset Management (listed London Stock Exchange) and as a charter investor and director of Lending Tree ( download short professional profile ). He provides portfolio design and management services to individual and corporate clients. He also edits the QVM investment blog. His writings are generally republished by SeekingAlpha and Reuters and are linked to sites such as Kiplinger and Yahoo Finance and other sites. He is a 1970 graduate of Dartmouth College.

Copyright 2006-2008 by QVM Group LLC All rights reserved.

Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Do your own due diligence.

Richard Shaw Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

gary powell
26 Oct 08, 00:04
Feedback from Gary Powell, Melbourne Australia.

Excellent comment from Mr Richard Shaw and Warren Buffet in these crazy difficult market times ..

Of course with almost everybody electronicly 'connected up' today in the global economy a large savage hit will affect us all ..

Time remains to see if it will be severe enough to pull the business and trading of everyday 'real world' markets down to a great deal.

Things appear still kida OK over here in Melbourne, Australia. Gary.


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