Investors Are Doing Something We’ve Never Seen Before. Here’s Warren Buffett’s Best Advice for the Situation.
The stock market has been in amazing shape ever since Standard & Poor’s 500 (SNPINDEX: ^GSPC) Hit the bottom of the previous one Bear market In October 2022. Since then, the index has risen by about 70% as of this writing. Many stocks saw greater returns during that 26-month period.
Most people believe that these returns are just the beginning of a strong bull market. In fact, 56.4% of consumers expect stock prices to rise over the next year, according to the Conference Board’s latest U.S. Consumer Confidence report. While this may not seem like an overwhelming percentage of the population, it is a record high number since the survey began collecting this data 37 years ago.
Stock values are affected by two main factors – financial results and investor sentiment – and many companies leading a bull market have achieved impressive financial results over the past two years. But smart investors can’t ignore that more people are optimistic about future stock market returns than ever before, which has sent prices soaring.
Warren Buffett has some good advice for this situation.
In October 2008, the S&P 500 was already down 40% from its 2007 peak, and many investors thought things could get even worse. In an editorial by L New York Times“Fear is now widespread, even among experienced investors,” Buffett wrote. In fact, American consumers have never been more pessimistic about the future of the stock market, according to a survey conducted by the Conference Board.
Buffett had to remind readers of the simple rule he established Berkshire Hathaway‘s (NYSE: BRK.A) (NYSE: BRC.B) 1986 Letter to Shareholders. “We simply try to be fearful when others are greedy and to be greedy only when others are fearful.”
When Buffett wrote these words in 1987 (to summarize Berkshire’s financial results in 1986), he noted that “a little fear is palpable on Wall Street.” At that time, investors drove up stock prices, and as a result, he was unable to find any suitable stock investments for Berkshire’s portfolio. Instead, he piled about $700 million of Berkshire’s money into Treasury bonds.
He wasn’t very happy about it either. “At best, bonds are modest investments,” he said. “They simply seemed the least objectionable alternative at the time.”
In 2008, he applied the exact same idea to the market with backfire. He moved his personal portfolio from 100% government bonds to 100% US stocks. It proved to be a very fortuitous move for the Oracle of Omaha. The S&P 500 bottomed a few months after Buffett published his op-ed and continued to produce Amazing returns over the next 15 years.
Comments are closed, but trackbacks and pingbacks are open.