Warren Buffett has a trick for making money in the stock market, and he says it’s a skill “you can learn in fourth grade” — though it’s “not taught in schools.”
At Berkshire Hathaway’s annual shareholder meeting on Saturday, Buffett recommended not obsessing over finding the perfect time to buy a stock. Rather, the Berkshire Hathaway CEO said, go ahead and invest, and then watch the stock market over time to see whether you should buy or sell more of that company’s stock.
Buffett said he, his longtime business partner Charlie Munger, and other Berkshire Hathaway executives have long used this strategy because it has a higher opportunity for returns and takes some of the pressure off of predicting the stock market. If a stock’s value goes down after you buy it, Buffett said it means its shares have gotten cheaper — so buy more of them.
“We don’t have the faintest idea what the stock market is going to do when it opens on Monday,” Buffett said. “We weren’t good with the timing. We were pretty good at figuring out when we were getting enough bang for our buck.”
Using this strategy to navigate the stock market rather than trying to predict it, according to Buffett, is almost like having an insurance policy in an often volatile market. Twice, he said, he tried to predict the market in advance — once in 2008 during the Great Recession and again in March 2020 before the Covid-19 pandemic that paralyzed global markets.
Those decisions cost Berkshire Hathaway billions of dollars, he said.
“We were bullish in 2008 when all stocks were down,” Buffett noted. “We spent a large percentage of our net worth at a very stupid time. We spent about $15 or $16 billion, which was a lot bigger for us then than it is now.”
Buffett attributed the navigation strategy to the success of Berkshire Hathaway, which has a market cap of $704.29 billion as of Tuesday morning. In a broader sense, the strategy would then also be responsible for Buffett’s status as a billionaire. The 91-year-old currently has a net worth of $115.2 billion, making him the sixth richest person in the world, according to Forbes.
Another billionaire has apparently followed a similar playbook: Tesla and SpaceX CEO Elon Musk, currently the richest person on earth. On Sunday, Musk tweeted a well-known investment piece of advice: “Buy stocks in multiple companies that make products [and] Services you believe in. Only sell when you think about their products [and] Services are developing worse. Don’t panic if the market does.”
“That will serve you well in the long run,” Musk added.
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