High inflation, rising interest rates, and the possibility of a recession may worry most investors, but advice from experts like Warren Buffett can provide resources for success.
- Investors face many difficulties this year as the market trends downward, and inflation and high interest rates reduce spending across multiple sectors.
- However, the dismal market conditions are not all bad news, at least according to legendary investor Buffett.
- Throughout his long career, Buffett has advised investors in all of these situations, including what to do as the stock market weakens, how to combat high inflation, and how to protect investments during rising interest rates.
Why it’s news
As a remarkably successful investor, Warren Buffett can give others valuable insights into success. The 92 year old has seen almost everything that can happen in the market before and has a solution for nearly every difficulty.
When the market is trending down, Buffett tells investors not to panic. In fact, he suggests that it is a positive thing.
“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 going to be buying on balance,” Buffett says. Prices will go back up eventually, but investors should consider declining stock prices a “sale” on potential investments.
“Stocks sell at silly prices from time to time,” Buffett says. “It doesn’t take a high IQ to figure out they’re cheap, but it does take a temperament that’s willing to step up and actually act.”
Buffett compared checking stock prices frequently to someone getting a house appraisal every day. The homeowner does not care how the price changes daily—he knows he will hold onto the investment for a long time.
“The point is to buy something you like at a price you like, and then hold it for 20 years,” Buffett says.
While falling stock prices can be a good sign for an investor looking to grow his portfolio, Buffett does warn against the difficulties of inflation. His simple tip is, “The best investment against inflation is to improve your own earning power. The best passive investment, I think, is a good business.”
Making wise investments can protect assets from inflation. However, the careful investor should choose wisely companies that are likely to be inflation resistant. Buffett describes these companies as those with two qualities, the “ability to increase prices rather easily” and “an ability to accommodate large dollar volume increases in business.” Companies that fit these criteria will have a competitive advantage and a scalable business that can survive inflation.
Like inflation, interest rates are likely to change no matter what the investor does. Like all his other advice, Buffett warns to consider the long-term and cautions against panicked decisions. He compares interest rates to gravity in the stock market. When rates are high, investment and growth will slow; when rates are low, investments and growth will rise.
Investors should keep long-term investments in mind and be independent of frequently changing numbers.