Important points
- Value stocks will outperform growth stocks in 2022.
- Timeless investing lessons never go out of style.
- These lessons can be the words of wisdom needed to weather a bear market.
Warren Buffetts Berkshire Hathaway (NYSE:DAP 1.92%) (NYSE:DAC 1.81%) has garnered a lot of attention lately, and with good reason. Despite Buffett’s long-term outperformance, Berkshire Hathaway has lagged in recent years S&P 500 and the Nasdaq Composite declined as Berkshire doesn’t include technology stocks, which are responsible for the bulk of the market’s gains.
In 2022, however, Berkshire Hathaway stock is up 16% while the S&P 500 is down this year — thanks largely to the recent outperformance of value stocks versus growth stocks. Also, last Monday, Berkshire Hathaway stock hit a new all-time high.
Short-term results aside, there are three lessons from Warren Buffett that have proven invaluable over time and are particularly applicable today.
1. Don’t follow the crowd
If there’s one thing we’ve learned over the past two years, it’s that following the crowd is a fantastic way to lose money.
Following the COVID-19-triggered stock market sell-off in spring 2020, meme stocks, unprofitable growth stocks and pandemic stocks took center stage. company like Zoom Video Communications and Peloton Interactive posted gargantuan gains while the energy sector, financials and real estate stocks took a beating. In 2021, the exact opposite was true: many of these pandemic winners lost money, while energy was the best-performing sector across the S&P 500.
Today, in 2022, some of the biggest growth stocks have suffered big losses, while value stocks and stable dividend payers have been the real winners. The lesson here is that it’s not a good idea to invest in stocks that are working or not working in a given period of time. For years, Warren Buffett and his team were scrutinized for holding a large cash position and not buying more stocks. But in the end, Buffett’s patience paid off, as Berkshire had enough dry powder to jump on opportunities like its recent acquisition of Alleghany displays.
2. Invest in what you know
Buffett advocates investing in what you know so you have an edge in the stock market. This sounds simple, but is quite difficult to implement in practice.
Times are changing and the economy is more digital than ever. Investors who don’t understand tech-focused companies could follow in Buffett’s footsteps and ignore the sector altogether, or into a relatively easy-to-understand company like Apple invest.
Another option is to research a company and follow quarterly earnings reports. While this requires more work, it also gives you the tools you need to sustain a company through tough times and play out the investment thesis. And if the investment thesis changes or the company loses its edge over the competition, you’ll be in a better position to step out of position and avoid a falling knife.
3. Greed and Fear
Buffett’s famous quote “Be fearful when others are greedy and greedy when others are fearful” sums it all up. The advice applies perfectly to buying the dip in the US-China trade war selloff in late 2018, the 2020 selloff, and probably the current selloff we are witnessing. But the advice to be fearful when others are greedy is also worth discussing.
Valuations for many growth companies have soared to astronomical heights, unsupported by fundamentals and the most optimistic forecasts. When that happens, Buffett advises being anxious, as it could be a sign of an unhealthy stock market.
Buffett has always believed in finding value where others don’t look. In many ways, the oil and gas industry has been full of lucrative dividend and value stocks that investors have ignored in favor of renewable energy and flashier names. Carbon neutrality is the future. But the world still lives on fossil fuels. Buffett’s ability to take criticism and invest in “ugly” stocks has enabled him to make brilliant buys, like acquiring some of the company’s energy infrastructure Dominion Energy in July 2020, the gradual construction of Chevron-Shares and other investments through Berkshire Hathaway Energy, the energy arm of the conglomerate.
Keep your cool when times are tough
When your screen is flushed red and stocks are falling non-stop, it’s easy to panic and make a decision you may later regret. By relying on the timeless lessons of investing, investors have a few tools to use during tough times. Rather than downplaying the emotional side of investing, it’s often better to accept the emotions involved and simply try to make the best decision possible with what you know.
One of the most reassuring facts to draw on is the long-term performance of the US stock market. This track record teaches us that each selloff has proven to be a great long-term buying opportunity.
The item 3 Timeless Lessons From Warren Buffett You Can Apply Now appeared first on The Motley Fool Deutschland.
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This article was written by Daniel Foelber in English and on 3/27/2022 at Fool.com released. It has been translated so that our German readers can join the discussion.
The Motley Fool owns shares of and recommends Apple, Berkshire Hathaway (B shares), Peloton Interactive, and Zoom Video Communications. The Motley Fool recommends Dominion Energy, Inc. and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares) , short January 2023 $265 calls on Berkshire Hathaway (B shares) and short March 2023 $130 calls on Apple.
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