Why you should navigate, not predict, the stock market

Warren Buffett has a trick for getting his money’s worth out of the stock market, and he says it’s a skill “you can learn in the fourth grade” — even though it’s “not taught in schools.”

At Berkshire Hathaway’s annual shareholders meeting on Saturday, Buffett recommended against obsessing over finding a perfect time to buy a stock. Rather, the Berkshire Hathaway CEO said, go ahead and invest, and then observe the stock market over time to see if you should buy more of that company’s stock or sell it.

Buffett said that he, longtime business partner Charlie Munger and other Berkshire Hathaway executives have long used this strategy because it has a higher chance of return, and it alleviates some of the pressure of trying to predict the stock market. If the value of a stock dips after you buy it, Buffett noted, that means its shares have become less expensive — so buy more of them.

“We haven’t the faintest idea what the stock market is going to do when it opens on Monday,” Buffett said. “We’ve not been good at timing. We’ve been reasonably good at figuring out when we were getting enough for our money.”

Using this strategy to navigate the stock market instead of trying to predict it, Buffett said, is almost like having an insurance policy in an often volatile market. Twice, he said, he’d tried to predict the market ahead of time — once in 2008 during the Great Recession, and again in March 2020 ahead of the Covid-19 pandemic crippling global markets.

Those decisions cost Berkshire Hathaway billions of dollars, he said.

“We were optimistic in 2008 when everybody was down on stocks,” Buffett noted. “We spent a big percentage of our net worth at a very dumb time. We spent about $15 or $16 billion, which was a lot bigger to us then than it is now.”

Buffett credited the navigation strategy to Berkshire Hathaway’s success: The company has a market cap of $704.29 billion, as of Tuesday morning. By extension, the strategy would also then be responsible for Buffett’s status as a billionaire. The 91-year-old currently has a net worth of $115.2 billion, making him the world’s sixth-richest person, according to Forbes.

Another billionaire has apparently followed a similar playbook: Tesla and SpaceX CEO Elon Musk, currently the world’s richest person. On Sunday, Musk tweeted a piece of familiar investing advice: “Buy stock in several companies that make products [and] services that you believe in. Only sell if you think their products [and] services are trending worse. Don’t panic when the market does.”

“This will serve you well in the long-term,” Musk added.

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