The economic outlook is becoming hazy.
Inflation is unmistakably on the rise around the world.
Last week, the US Labour Department said that consumer prices jumped by 7.5% in January, the highest level in the past four decades.
The effect can be felt in Singapore too.
Transportation has become more expensive as train fares increased last December.
Recently, ComfortDelGro Corporation Limited (SGX: C05) announced that it will be increasing its taxi flagdown rates by 20 cents in the coming month.
The move comes after bus fares were also hiked last year to cope with rising operating costs.
Meanwhile, staying at home comes with higher electric bills.
The prospect of higher inflation has led economists at Goldman Sachs (NYSE: GS) and Bank of America (NYSE: BAC) to project as many as seven interest rate hikes in 2022.
Nightmare on Wall Street
The scary-sounding headlines are rattling stock markets around the world, including back home.
Research by DBS Group (SGX: D05) showed that almost half of the 44 Singapore REITs are trading close to 52-week lows in January.
At times of distress, we can turn to past advice from Warren Buffett to keep our wits about us.
On that note, here are nine of the best, most relevant quotes for our times:
1. Don’t get too comfortable holding cash
In October 2008, Buffett wrote an op-ed titled “Buy America, I am” where he spoke about the danger of being too comfortable holding cash.
“Today people who hold cash equivalents feel comfortable.
They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value.”
Unfortunately, as inflation rears its ugly head, our cash in the future will be worth less than it is today.
2. The upside to uncertainty
Investing during uncertain times is uncomfortable. However, Buffett reminds us that …
“The future is never clear.
You pay a very high price in the stock market for a cheery consensus.
Uncertainty is the friend of the buyer of long-term values.”
Uncertainty has an upside: lower share prices.
The alternative is to pay higher stock prices when the outlook becomes positive.
We prefer the former.
3. Keeping our wits about us
As Peter Lynch once said, the most important organ in investing is your stomach, not your brain.
“The most important quality for an investor is temperament, not intellect.
You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.”
Keeping our emotions in check is easier said than done.
But fear not, I have written about some basic steps you can take here.
4. You don’t need to make ground-breaking moves
Investing does not have to be complicated.
We can start by recognising that quality matters more than quantity in investing, as Buffett counsels:
“Beware the investment activity that produces applause; the great moves are usually greeted by yawns.”
Making many spectacular moves does not make you a better investor.
Making thoughtful investments does.
5. Simple rules for uncertain times
Knowing what not to do can be as important as knowing what to do.
For instance, the Oracle of Omaha has a simple saying:
“Never invest in a business you cannot understand.”
To know what to do, start by knowing what to avoid.
Cheap rubbish is still rubbish.
6. Focus on the only time horizon that matters: the long term
For the best returns, you need to have the patience for your stocks to appreciate.
To set the right expectations, investing is not about generating results the moment you click buy.
As the Oracle once said:
“Successful investing takes time, discipline, and patience.
No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant.”
Likewise, you need to provide ample time for the management team to demonstrate what they can do.
7. Take your time to pick the best companies
In baseball, if you fail to swing at three pitches, you will strike out.
Buffett used this analogy to point out the difference between investing and baseball:
“The stock market is a no-called-strike game. You don’t have to swing at everything — you can wait for your pitch.”
In other words, you don’t have to buy every cheap-looking stock that comes your way.
Take your time, swing only when a great opportunity arises.
8. Time is the friend of the wonderful company
If you do a good job in picking the right companies, then time is on your side, as the Oracle points out:
“Time is the friend of the wonderful company, the enemy of the mediocre.”
As the business grows, your wealth will compound.
And the longer the compounding happens, the better it is for you.
9. Prepare, don’t predict
Economists are tripping over each other today to predict what seven people in the US Federal Reserve will do.
But in the end, everyone’s guessing.
The better way, Buffett proposes, is to prepare, and not predict.
“Predicting rain doesn’t count. Building arks does.”
At The Smart Dividend Portfolio, we have shaped our portfolio in a way that has survived the past two years and is paying out more dividends than ever before.
We invite you to do the same: prepare, don’t predict.
Our beginner’s guide to investing is finally here! Many investors took years to understand the principles inside, but you can have it all in one afternoon. If you have just started investing, download our free guide today so you can catch up quickly. Click here to download now.
Disclosure: Chin Hui Leong owns shares of DBS Group.