Unfortunately, due to the coronavirus, the stock market has declined the point that experts are calling it a bear market. However, while many are leaving the market, mega investors like Warren Buffet are gearing up for more investments. If this sounds like you, follow Buffett’s four big rules for investing in a bear market.
What Is A Bear Market?
Never heard the terms “bull market” or “bear market?” No worries, we’ll fill you in! A bull market is the term for a market on the rise, marked by a sustained increase in average stock prices across the board. Meanwhile, by stark contrast, a bear market is one that is one the decline. Usually, investors and experts begin to use the term bear market after the average stock price falls by more than 20% or more from recent highs. Without a doubt, we’re in a bear market now. So, should you invest, and if so, how? Well, Warren Buffett has some ideas on that…
Stability
Rule number one while investing in a bear market: only invest in stable companies. First, only look for companies that are at least 10-years-old. Second, take a look at their earnings and metrics over the past decade. Just because a company has been around awhile, doesn’t mean they’re doing well. But, if it’s a mature company with an upward trend, that’s worth investing in, even in a bear market. “[My] favorite holding period is forever,” states Buffett. He chooses stability over huge quick money and likes to build up income.
Value
Of course, past achievements are all well and good, but a company also needs to last. “A dollar tomorrow is not the same as a dollar today,” say the hosts of The Investors Podcast, who also happen to adore and follow Buffett and his books. Time and time Buffett has reminded the world that he loves a predictable company that always brings in returns.
So what are some trustworthy industries that Buffett loves? Well, insurance companies and modern staples, that’s for sure. After all, some of his most significant returns have come from Geico, Apple, and Coca-Cola.
Leadership
Next, look for a company with great leadership. “Everything within the company starts at the top and reflects the lowest position of the company. Finding the right leader of a company and organization is vitally important to Buffett,” said Stig Brodersen, founder of BuffettsBooks.com. If the current CEO has been there for some time, great. The companies sustained growth proves their track record. On the other hand, if the CEO is new, do some research to see what you can find out about their leadership skills.
Bravery
One of Buffett’s most famous sayings is “be greedy when others are fearful.” After all, Buffett specializes in investing when everyone else jumps out of the market. And he has good reason too! Not only has the United States survived every economic downturn, but markets have always been stronger on the other side. So, by staying the course, Buffett has made much better returns in the long run than nearly anyone else.
Don’t forget that in a year, the usual routine will come back to normal, and Americans will do all the ordinary things like before. They will visit festivals, go out and entertain themselves. So, don’t be afraid to be greedy.
Sources: MSN, BusinessInsider