Warren Buffett’s investment strategy aims to leverage the market cycle to maximize returns. Historically, he has bought high quality companies when trading at low prices during a market crash. Then he keeps them for a long time.This time they often benefit from it Market rally It pushes their stock price higher.
Buffett was able to use this strategy repeatedly. Market cycle It is ubiquitous. Therefore, the next market crash is not far away. Following the initiative of Oracle in Omaha, it is possible to outperform the equity market in the long run by using a patient approach to building cash balance.
The market crash is always on the horizon
Many stocks have skyrocketed after the 2020 market crash, but history suggests that they are very unlikely to rise permanently. After all, market recovery has never lasted indefinitely. They are always coming to an end. In fact, a sharp fall in stock prices usually follows a period of high growth.
So it makes sense to always plan ahead for the next market downturn. Warren Buffett achieves this goal by purchasing quality companies only when the safety margin is wide. In doing so, he avoids overrated businesses.
They are the ones that can be most adversely affected by the downturn in the market. He also always has a lot of cash. This cash pile can be deployed quickly if the stock price temporarily drops to a very low level.
Warren Buffett can also take advantage of the market crash for his benefit. That’s because he has a long-term view of his portfolio. A sharp drop in the market can be a major concern for short-term investors. For long-term investors concerned about portfolio performance over the next decade, months of paper losses are unlikely to cause future financial problems.
Implementing Buffett’s Strategy Today
Obviously, it’s unclear when the next market crash will occur. But history shows that it will happen someday. Therefore, following Warren Buffett’s strategy can be a healthy move.
At this point, this may mean avoiding overvalued companies that have skyrocketed as a result of improved investor sentiment. Instead, buying a company that is undervalued by investors or has a wide margin of safety due to a temporary disruption of business can be a less risky move. They may offer greater return potential in the long run. It may also be less susceptible to the next market downturn.
In addition, holding some ready cash may be a wise move. That means getting low returns due to low interest rates, but cash allows investors to take advantage of the next market crash. In the long run, this strategy can be more profitable than buying stock after it has already risen in value.
The views expressed about the companies mentioned in this article are those of the author and may differ from the official recommendations made by subscription services such as Share Advisor, Hidden Winners, and Pro. Here at The Motley Fool, by considering different insights, Better investors than us.
Why Warren Buffett thinks it’s right to believe that a market crash will always come
https://www.fool.co.uk/investing/2021/02/06/why-i-think-warren-buffett-is-right-to-think-a-market-crash-is-always-coming/ Why Warren Buffett thinks it’s right to believe that a market crash will always come