Warren Buffet Wisdom on The Market: Today or Any Day

Today the stock market had a crazy day with the S&P 500 dropping almost 2%.

They blame Trump and the chaos surrounding his supposed cozy relationship with Russia. Let’s keep this in perspective.  The S&P 500 is up over 7% from Jan 2017 through May of 2017. If today was the last day of the year, we’d count 7% up as a pretty good year.

At Eugenio Financial, we build portfolios to get through tough times such as these.

When managing money, we start with a Model portfolio that is back tested with over 20 years of Data.  Back testing shows how well it would perform in good markets, as well as in bad markets.  Most of our portfolios carry no more than 55% in the US Stock Market.  The rest is spread out among other asset categories such as International Stocks, Bonds, Real Estate and Cash.  This keeps the portfolio from working in lock step with the stock market. When markets are crazy like they are now, our Model portfolio will drop, but not nearly as hard.  Recovery of the portfolio will typically come more quickly than the overall stock market.

There is an adage of investing success, “It is not market timing, but time in the market”.  The one lesson I have learned after many years of doing this, is that once we have a strategy, we must stay disciplined to that strategy.  Tweak it, rebalance it from time to time, but stay focused.  Eventually this bad market will pass; the stock market will recover and most likely will go on to new highs.  It has always worked that way; I have no reason to believe it won’t happen again.

Wisdom from the Oracle of Omaha

Warren Buffet, who is one of the richest people in the world, made almost all of his money in the stock market.  He was interviewed recently by one of the talking heads.  Here’s a paraphrased version of that conversation.

Talking head: “Mr. Buffet, today was a bad day in the stock market.  We estimate that you may have lost over ten million dollars. Certainly, you must be very concerned?”

Mr. Buffet: “I have no concerns whatsoever.  Markets like these come and go.”

Talking head: “But sir, you lost so much money, are you going to do something to protect yourself from losses?  Perhaps you are getting ready to sell and get out of the market?”

Mr. Buffet: “No, actually I’m buying right now.”

Talking head: “Buying?  Oh, my goodness how can you buy at a time like this?”

Mr. Buffet: “You see when markets go down and everybody is selling, that’s when I buy. I buy because everything is cheap and on sale.  When markets go up, that’s when I sell, because everything is expensive and I make profits.  “Please understand, that’s how I got rich.”

Talking head: “But that could take a long time.”

Mr. Buffet: “That’s ok, I have plenty of time*, and I can wait.”

If Warren Buffet isn’t panicking, why should we?

*Mr. Buffet is 85.