Warren Buffett turned 91 on Aug. 30, 2021. He’s been an investor for 80 of those years. That’s right — Buffett bought his first stock when he was only 11 years old.
Through the years, Buffett has survived and thrived during multiple market sell-offs. And he has become one of the greatest investors in history, with many revering him as the “Oracle of Omaha.”
Investors looking for ways to handle the current stock market downturn could do far worse than to learn from Buffett. Here are three things that he’s doing in this dismal market that you probably should do too.
1. Accumulate cash
Buffett and his longtime business partner Charlie Munger have a standing policy that Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) will always hold more than $30 billion in cash and equivalents. That’s mainly because they want the company to remain financially strong and never be forced to borrow money.
Berkshire’s cash position currently totals a whopping $144 billion. Buffett doesn’t really like having that much cash. However, he thinks it’s prudent right now.
Individual investors, of course, have different needs and goals than a huge conglomerate such as Berkshire Hathaway does. It’s wise, though, to accumulate some cash to be able to invest when stocks are especially attractive.
You might be thinking, “Aren’t many stocks attractive right now?” For Buffett and Berkshire, the answer is “no.” In his latest letter to Berkshire shareholders, Buffett wrote that “we find little that excites us” in the current market. Again, though, your definition of an attractive stock could be different from Buffett’s.
2. Focusing on businesses and not stocks
There was one statement in the recent letter to Berkshire shareholders that is especially important. Buffett wrote, “Charlie and I are not stock-pickers; we are business-pickers.”
Every long-term investor should share this mindset. Buffett noted that he looks for businesses with “both durable economic advantages and a first-class CEO.” He then added, “Please note particularly that we own stocks based upon our expectations about their long-term business performance and not because we view them as vehicles for timely market moves.”
It would be a great idea to reread those statements before buying any stock. With this perspective in mind, you’ll never purchase a stock simply because it’s fallen significantly.
3. Buying selectively
Don’t think that Buffett isn’t investing at all during the current market downturn; he is. Buffett and his investing managers are buying but doing so selectively. And it dovetails with the previous point about focusing on businesses.
Berkshire bought seven stocks in the fourth quarter of 2021. More recently, Buffett added to Berkshire’s position in Occidental Petroleum.
The purchase of nearly $1 billion of Occidental stock implies that Buffett is bullish about the oil and gas industry and especially Occidental’s prospects. I think he’s probably right. My view is that midstream energy company Enterprise Products Partners offers another way to profit from the industry’s tailwinds. It also has a juicy dividend yield of nearly 7.7%.
In the fourth quarter, Berkshire scooped up shares of Latin American digital banking company Nu Holdings. I assume that Buffett (or one of his two top investing lieutenants) like the opportunities for fintech in Latin America. I definitely do. That’s why I’m a big fan of Argentina-based MercadoLibre, which has fast-growing businesses in both e-commerce and digital payments. The stock is also attractively valued, in my view, in light of its growth prospects.
You don’t have to copy Buffett 100% to be successful. However, it can be helpful to try to understand why he does what he does to see how it could apply in your situation.
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Keith Speights owns Berkshire Hathaway (B shares), Enterprise Products Partners, and MercadoLibre. The Motley Fool owns and recommends Berkshire Hathaway (B shares) and MercadoLibre. The Motley Fool recommends Enterprise Products Partners and recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.