Navigating the highs and lows of the stock market can be daunting. Many investors wonder whether they should time their investments to coincide with market crashes in hopes of buying the perfect price level. A common question is: Should an investor have wait for a downturn to start buying into the stock market? Let’s turn to the wisdom of one of the world’s most successful investors, Warren Buffett, to shed some light on this subject. We’ll delve into his perspective and glean insights from his experiences to help guide your decisions about which investment strategies could be best for you.
Warren Buffett on Investing: Timing the Market
The following transcript is taken from the afternoon session of the Berkshire-Hathaway shareholders meeting in 1996.
“So, in five, well, you did what you wanted. I mean, you followed my advice. I’m batting a thousand. We’ll see what you’re batting next year.”
“In general terms, unless you find the prices of a great company really offensive, if you feel you’ve identified it and by definition, a great company is one that’s going to remain great for thirty years. If it’s going to be a great company for three years, you know, it ain’t a great company. I mean it. So, you really want to go along with the idea of something that, if you were going to take a trip for 20 years, you wouldn’t feel bad leaving the money and with no orders with your broker and no power of attorney or anything, and you just going on the trip and you know, you come back, and it’s gonna be a terribly strong company.”
“I think it’s better just to own them. I mean, we could attempt to buy and sell some of the things that we own that we think are fine businesses, but they’re too hard to find. I mean, we found See’s Candy in 1972. Here and there, we get the opportunity to do something, but they’re too hard to find. So, to sit there and hope that you buy them in the throes of some panic, you know, that you sort of take the attitude of a mortician, waiting for a flu epidemic or something, I’m not sure that that will be a great technique.”
“I mean, it may be great if you inherited money like Paul Getty, who inherited money at the bottom in ’32. He didn’t inherit it exactly talked his mother out of it, but it’s true, actually. He benefited enormously by having access to a lot of cash in the early 30s that he didn’t have access to in the late 20s. You can get some accidents like that, but that’s a lot to count on.”
“And you know, if you start with the Dow at X, and you think it’s too high, when it goes to ninety percent of X, do you buy? Well, if it doesn’t, and it goes to fifty percent of X, you never get the benefit of those extremes anyway unless you just come into some accidental sum of money at some times. So, I think the main thing to do is find wonderful businesses.”
“Is Phil Caray here? We’ve got the world, and there’s the hero of investing. Phil, would you stand up? Phil is…uh…ninety-nine. He wrote a book on investing in 1924. [Applause] Phil has done awfully well by finding businesses he likes and sticking with them and not worrying too much about what they do day to day. There’s going to be an article in The Wall Street Journal about Phil on May 28th, and I advise you all to read it. You’ll probably learn a lot more from him than by coming to this meeting.”
“But it’s that approach of buying businesses. Let’s just say there was no stock market, and the owner of the best business in whatever your hometown is came to you and said, ‘Look, my brother just died, and he owned 20 percent of the business, and I want somebody to go in with me to buy that 20 percent. The price looks a little high, maybe, but this is what I think I can get for it. Do you want to buy?’ If you like the business and you like the person who’s coming to you, and the price sounds reasonable, and you really know the business, I think probably the thing to do is to take it. And don’t worry about how it’s quoted. It won’t be quoted tomorrow, or next week, or next month. I think people’s investment would be more intelligent if stocks were quoted about once a year. But it isn’t gonna happen that way. And if you happen to come into some added money at some time when something dramatic has happened, I mean, we did well back in 1964 because American Express ran into a crook. We did well in 1976 because GEICO’s managers and auditors didn’t know what the loss reserve should have been the previous couple of years. So, we’ve had our share of flu epidemics, but you don’t want to spend your life waiting around for one.”
- Don’t let market volatility dictate your investments. If you identify a strong business that is set to remain robust for an extended period, it’s generally a good idea to invest.
- Timing the market is not a reliable investment strategy. While some might inadvertently benefit from buying at the bottom, it’s not something to rely on.
- Looking for temporary market panics to invest in may not be the most efficient technique. Investment should be about recognizing the value and not speculating on unfortunate events.
- A successful investing strategy is finding businesses you appreciate and sticking with them without worrying about daily fluctuations.
- When considering investments, think of it as if there’s no stock market. If the business is good, the people running it are reliable, and the price seems fair, it’s a wise investment decision.
- Even though the stock market may reflect dramatic changes, investing should not entirely depend on these changes.
As Warren Buffett explains, investing isn’t about waiting for a market crash or trying to time the market. It’s about identifying good businesses with solid potential for long-term success and sticking with them. The focus should always be on the intrinsic value of a business rather than temporary market fluctuations. Even in times of sudden market changes, the primary consideration should always be the inherent worth of a business, not the situation causing the change. This approach can lead to successful and profitable investments. In other words, investing should be an exercise in business analysis, not market speculation. Traders are the ones that speculate, and that is an entirely different process.