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.
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