CNBC interviewed Warren Buffett this past Monday.
After Buffett published his most recent annual letter for Berkshire Hathaway Inc. (BRK.B), he took two hours out of his day to answer questions ranging from Berkshire’s future to politics.
It was a fantastic interview. If you have two hours to set aside, I’d recommend watching it. You can find it HERE.
Since I have plenty of time these days, being retired in my 30s and all, I watched the entire thing. Even at 89 years old, Buffett is still as sharp as ever.
Although he gave his take on a wide variety of topics, I want to quickly highlight what Buffett had to say about one issue in particular.
That issue is the current outbreak of coronavirus (COVID-19).
The sudden spread of the disease outside of mainland China has caused a lot of volatility in the stock market over this past week.
The S&P 500 ended last Friday at 3,337 points. It’s now at 3,116 points. Many stocks, even high-quality stocks like Microsoft Corporation (MSFT), fell by 10% or more peak-to-trough. That’s correction territory in very short order.
My FIRE Fund is holding up relatively well in terms of its value against the broader market. It’s down quite a bit less than the S&P 500 throughout this drop. That’s not surprising. The Fund is mostly invested in blue-chip dividend growth stocks.
However, this doesn’t matter to me. It has no real-world effect on what I do.
The market value of my Fund doesn’t provide for my lifestyle. My lifestyle is provided for by the growing dividend income that the Fund generates. That five-figure passive dividend income is the wellspring from which my financial freedom flows. It’s the source of my autonomy.
Of course, a global pandemic could and most likely would affect the global economy. In turn, many of the companies I’m invested in could and most likely would see their profits affected. And that could hamper dividend growth rates in the near term.
But if you’re a long-term investor, this stuff is mostly noise. It’s unlikely that anyone will be talking about COVID-19 next year, let alone in 10 years. The world will move on to some new headline soon enough. That’s how it goes.
Successful long-term investing is thinking in terms of decades, not individual months or years. You should be seeing your stocks for the slices of real businesses that they are. When you own stock, you own a part of a company. Think like an owner.
It’s certainly sad that this virus is killing people, and I hope we kick it soon. But I don’t think any of this requires a reaction from a long-term investor.
Most of the money I’ll ever invest has already been invested. My main goal as it relates to investing was to achieve financial freedom and put myself in a position to live intentionally, not to endlessly, mindlessly, and aggressively accumulate money/stocks for the rest of my life.
That said, I do still enjoy investing as a pastime. Investing will always be a passion of mine. And I continue to put away a modest amount of money into high-quality dividend growth stocks, month in and month out. That doesn’t change as a result of COVID-19.
So my reaction to all of the headlines is no reaction at all. I’m not changing anything I do. I’m sticking to my long-term capital allocation strategy.
And would it seem that Buffett is in agreement:
If you’re buying a business – and that’s what stocks are: businesses. In fact, people would be better off if they say, ‘I bought a business today, not a stock today,’ because that gives you a different perspective on it… If you buy an apartment, a house, if you buy a business, you’re gonna own it for 10 or 20 or 30 years. And the real question is, has the 10-year or 20-year outlook for American businesses changed in the last 24 hours or 48 hours? You don’t buy or sell your business based on today’s headlines.
And if there is a reaction to be had, it’s to be more excited to buy stocks at cheaper prices.
Asked directly about his reaction to what’s going on, he said this:
Well, my reaction is that I like to buy stocks. I don’t wish ill on anybody else, but if they want to sell them to me cheaper, I prefer it. How can it be bad news, unless you have to sell stocks? Now, if you have to sell them for some reason, you’re worse off. If you don’t have to sell them – I mean, someone could come around and offer you a quote on your house today, and it could be 2% less than they offered you yesterday. But if you like the house, it really doesn’t make any difference to you.
This is all well and good. Common sense, really.
But volatility does seem to shake people, even when they know deep down inside that it shouldn’t. I suppose that’s just the emotional nature of human beings. However, if you let logic carry the day, you’ll see that lower prices on stocks are advantageous to you over the long run.
When asked about whether the volatility worried him, he said this:
Well, no, that’s good for us, actually. We’re a net buyer of stocks over time. Just like being a net buyer of food. I expect to buy food for the rest of my life. And I hope that food goes down in price tomorrow. When stocks are down, we’re gonna be buying on balance. Who wouldn’t rather buy it at a lower price than a higher price? People are really strange on that. Most of your listeners are savers. That means they’ll be net buyers. They should want the stock market to go down. They should want to buy at a lower price. But they just feel better when stocks are going up.
I couldn’t agree more with Buffett on this. In fact, I wrote an article a number of years ago that explicitly laid out why I prefer stocks to almost universally go down in price – even if I’m no longer accumulating. If you’re actively investing, wishing for higher stock prices is illogical.
It was purely a coincidence that Buffett came on CNBC precisely when the US stock market started an epic slide downward, but I think it was great to hear from him during a time of such fear and volatility. He has a stoic yet affable nature about him that is highly accessible and digestible.
So there you have it.
That’s Buffett on the headlines and market volatility relating to COVID-19.
As you would welcome a sale down at your grocery store, you should welcome a sale in the stock market. The stock market is my favorite store, and stocks are my favorite merchandise. It’s always wonderful to see quality merchandise marked down.
Full disclosure: I’m long MSFT.
What do you think? Watch the interview? Did Buffett offer valuable insight?
Thanks for reading.
Image courtesy of: Wikimedia Commons.
P.S. If you’d like to invest your way to financial independence at a young age, check out some fantastic resources I personally used on my way to becoming financially free at only 33!
This week I have been doing the most “shopping” since the Xmas crash of 2018. All undervalued DGI stocks. Still have more names on my shopping list which may very well get filled in today’s expected plunge as well.
Jake,
Enjoy shopping for bargains! 🙂
Cheers.
S&P 500 below 3000! What a sell off! Time to mobilise my bonds for more equities
John,
Have fun! 🙂
Best regards.
Hi Jason,
Great article and thanks for posting Warren Buffet’s reminders. Staying the course and buying every month as usual. I agree, cheaper shares to be bought and this is a great opportunity so far.
Andy,
It’s always a pleasure to share Buffett’s enduring wisdom. Hope the piece gave some inspiration and peace of mind.
Best wishes.
Always feels bad watching your portfolio lose money, but it always goes higher in the long run. Could not agree more with the long term mindset. If you bought it to hold long term, daily and weekly drops shouldn’t worry you too much. Great post as always Jason
Mitchell,
The value of my Fund doesn’t really matter to me, especially since I never sell stocks. I just keep collecting those ever-larger dividend checks. Life is very good. 🙂
Cheers!
Bargains Bargains every where 🙂 I cant help but to buy great companies at bargain prices. I have been adding slowly to my Fun Fund but this past week has been a rare opportunity. I actually added a few new companies to the fund UPS and USBI. I may add a few more over the up coming weeks.
I look at these as just tiny blips in a long term plan. Ive mentioned before I retired early back in 2004 and survived the 08 09 crash just fine. This will pass like any other event and those of us who strategically buy on opportunity will prosper.
I know this is not the right topic but Jason I wish you and Oh the best in your new condo location 🙂
Bob,
This too shall pass.
Have fun with the bargain shopping. Appreciate the well wishes very much. 🙂
Best regards.
What’s your take on Occidental at this price with it’s yummylicious yield? I think it’ll be my next buy together with UPS.
Fred,
Occidental is too messy for me. But I think a lot of names in O&G certainly look appealing. I mean, Exxon is yielding over 7% right now. Pretty crazy.
Cheers!
If someone told me I could buy for example, MAIN at a 20% discount today from about 5 days ago and add it to my portfolio, I would have called them crazy.. When people freak out about these crises, I simply open Yahoo finance, and show them a chart of the S+P 500 and click “MAX” years. Then I ask if you remember all the past panics, and to point them out for me? It kind of puts everything into perspective quickly.
Paul,
Yeah, taking the long-term view is always the best approach. If I pull up a 40-year chart of the SPX, I can barely point out Black Monday. It’s not even a blip. Of course, that stuff feels crazy in the moment. But time smooths it all out. You just have to remain rational.
Even if you buy a stock right before a major drop, which might leave you feeling dumb, it doesn’t make a big difference over the long run. This article I wrote back in 2015 rings just as true today as it did then:
https://www.dividendmantra.com/2015/08/time-in-the-market-trumps-timing-the-market-for-the-long-term-investor/
Best regards.
While expected, this isn’t what I wanted to hear from Buffett. His calming advice might cause people to take a breath and not sell in a panic. Then stock prices would rise, or at least cease to fall. And right now, I benefit from falling stock prices.
What would really benefit me is if instead of his calming advice, Buffett told everybody to panic. What I need is for Buffett to run screaming through the streets of Omaha, wearing nothing but his underwear and a pair of black socks, holding a ripped up cardboard poster of 90s-era Michael Jordan in one hand and a set of bloodstained Gillette stock certificates in the other, yelling like mad at everybody to sell off all their stocks because the coronavirus gets stronger when the S&P 500 goes up, as if he were Charlton Heston warning us that Soylent Green is people.
Say what you will, but stock prices would definitely go down after that.
Sincerely,
ARB–Angry Retail Banker
ARB,
Don’t fret. We don’t need Buffett to run screaming through the streets of Omaha. We just need people to act emotionally and irrationally. Since human beings do that pretty frequently, I think we’ll be just fine. 🙂
Cheers.
Over at seekingalpha dot com contributor Investment Pancake had a nice article about the impact of 3 crises that adversely impact stock dividends. The GFC was a “ho hum” dividend disaster. The Great Depression/WW2 was a “bad” disaster. Unfortunately, the 1918 pandemic was the ugliest, a dividend cataclysm.
It should be available for 1 more day:
https://seekingalpha.com/article/4331725-what-will-happen-to-dividends-coronavirus-gets-really-really-bad
tl/dr takeaway? We should mentally prepare ourselves for a much-larger-than-normal probability of dividend cuts this year.
DL,
Well, this is unprecedented in modern history. Shutting down entire countries, even for short periods of time, is next level. But I suspect this is a rather temporary event. China is already getting back to normal. It seems clear that dividends from many companies, especially those most exposed to the massive reduction in demand for all non-essentials, could be in trouble over the next 3-6 months. Valuations have compressed for many of these companies to the point of near-bankruptcy, however.
I’d be very careful comparing COVID-19 to the 1918 pandemic. That’s disingenuous at best and outright fear mongering at worst. Mortality was quite high across all age groups with the Spanish Flu. If we saw something similar to that in 2020, I’d be more worried about surviving than dividend cuts. As is, I fear the remedy might be worse than the disease based on the science I’ve come across regarding COVID-19.
Cheers.
What is your opinion of the airlines like Delta who are likely to get a government bailout and likely to do away with their dividend? What’s your case for holding on to them and what would be your case for selling them? I know you never sell and I’m with you on that for 99% of my investments but I’m on the fence about selling my airline stocks. Just think they have a rough 5-10 years ahead of them from this. Thanks Jason take care!
David,
If the airlines get loans, that’s not a “bailout”. That’s money that would have to be paid back. As I understand it, grants and cash do not have a lot of political support. I’m of the opinion that if a government forces you by mandate to close your business to customers, they should compensate you for that. The US government taking some kind of temporary equity stake in certain affected businesses probably wouldn’t be a bad idea, but it looks like it’s just gonna be loans for airlines. The “bailout” looks to be directed toward citizens. By the way, Delta already announced that it was suspending its dividend for the time being.
As for selling stocks, I’ve been about as clear as I can be on that already.
Best regards.
Thanks for the reply! Wow I hadn’t even seen yet they’d already suspended their dividend. I’m going to hang on with a 20-30 year outlook knowing they have a great business model in place for when things get back to normal 🙂