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What Warren Buffett Can Teach Us About Handling Bear Markets

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Few people have a name associated with stock market success like Warren Buffett, and for good reason. With a net worth of over $100 billion, Buffett has earned his rightful place among royalty investments.and one of the best his success It didn’t take an extravagant strategy to do it.

as we endure bear market It has shrunk the value of many investors’ portfolios. Here are some of Buffett’s gems to help you better handle it and use it as an opportunity.

worth finding

Warren Buffett is the quintessential figure of value investing, a strategy in which an investor finds stocks trading at a lower price than himself. intrinsic (true) valueValue investors buy undervalued stocks with the aim of profiting from their eventual rise to intrinsic value. For example, if a stock trades at $100 and an investor believes it has an intrinsic value of $120, the investor will have at least a 20% stake when the market recognizes its true value. Invest in the hope of profiting from the rise.

Image Source: The Motley Fool.

During a bear market, investors may find that many blue chip companies are trading at “bargains” or their stock prices may be overcorrected.let’s take walmart, for example. From early April 2022 to his mid-June, Walmart’s stock has fallen by more than 20% to about $120 a share. Many investors would agree that this is below intrinsic value. Investors who have taken advantage of the dip have since returned more than 25%.

In general, when stock prices drop significantly, you have to ask yourself: why It’s happening. But during bear markets, when prices are falling across the board, many of these declines are by-products of the larger economy and do not indicate anything fundamentally changing in business.

don’t chase the crowd

Buffett has many great investment quotes, but none may be more relevant to today’s environment than “Be fearful when others are greedy, be greedy when others are fearful.” . Stock prices fall because investors start selling more shares than people buy and demand decreases. This is usually the sign investors fear. It may be time to be greedy and step up a notch if you have the financial means, instead of chasing after.

History shows that bear markets are inevitable. often necessaryThe sooner you learn it, the better, because it helps you adjust for short-term noise and focus on the long-term. Not when prices appear to be falling in front of. Delaying or stopping investments can hinder financial progress.

Since listing in December 1980, apple‘s stock has risen well over 100,000%, but during that time it has had negative returns in a third of the years (including 2022). Even the best companies have bad years. It is virtually unavoidable. However, if your focus is on the long term, it doesn’t really matter if your portfolio fluctuates weekly, monthly, or yearly, as long as the results are long-term.

Use dollar cost averaging

Buffett has long supported dollar cost averaging, “If you love spending six to eight hours a week investing, do it. If not, invest dollar-cost averaging in index funds.” Pick, decide how much you can invest, and invest according to a set schedule, no matter what. Frequency isn’t as important as sticking to a pre-set schedule.

Dollar cost averaging is great because it not only keeps you consistent but also prevents you from timing the market. bull marketThink about it: if prices are falling, why buy today when you can get it cheaper later? But the problem is trying to time the market, which is inherently impossible to do consistently over the long term.

Dollar cost averaging makes it easy to focus on your end goal without distractions.

Stephon Walters I have a job at Apple. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway (B shares), and Walmart. A short $200 put on Berkshire Hathaway (B shares) in January 2023, a short $265 call on Berkshire Hathaway (B shares) in January 2023, and a short $130 call on Apple in March 2023. The Motley Fool Disclosure policy.

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