The coronavirus outbreak is showing no signs of abating.
But the situation doesn’t seem to bother Warren Buffett too much.
In an interview with CNBC in late February, Buffett shared some key thoughts around how he is investing during the coronavirus outbreak that has gripped the world’s attention.
1. Remember, you’re buying a business — not a stock
“People can make decisions every second in stocks, whereas they can’t with farms, they think an investment in stocks is different than an investment in a business or an investment in a farm or investment in an apartment house.
… But it isn’t.”
When Buffett invests in stocks, he thinks in terms of buying a business. That may sound straightforward, but the difference in mindset can be significant.
For instance, if you bought an apartment to rent out, it is unlikely that events of the past 24 hours will change your mind about the prospects of the apartment.
Instead, I reckon that you’ll be more interested to figure out who you can rent it out to, and what rental rates you get.
Similarly, we should recognise that buying a stock is similar to taking a stake in a business.
We should be more focused on business activities rather than the short-term movement of the share price.
Stocks are not a piece of paper that you buy today to sell in the next hour.
2. Ignore today’s headlines
“You don’t buy or sell your business based on today’s headlines.”
We cannot let today’s events dictate how we choose companies that we plan to hold for the next 20 to 30 years, Buffett said.
The Oracle of Omaha backs up his words with action, where he has held shares of Coca-Cola Company (NYSE: KO) and American Express Company (NYSE: AMEX) for more than two decades each.
While the current Covid-19 situation may seem dire, the world has gone through multiple epidemics and pandemics over the past century.
And survived.
3. Hunting for bargains
“If it gives you a chance to buy something that you like and you can buy it even cheaper then … you’re in good luck basically.”
A market downturn could serve up cheaper stocks to buy.
But it does not give you the license to pick up any stock out there.
If you read his statement above carefully, you will see that Buffett’s advice has two parts.
For one, the stock you buy has to be a business that you like. Secondly, it is selling for a cheaper price due to the downturn.
In my book, you shouldn’t buy just because a stock has fallen. Instead, you should only buy when you have the intention to own the stock for a decade or more.
Get Smart: Common sense in uncommon times
If Buffett’s advice sounds like common sense … well, it is.
Judging by how much the stock market has been fluctuating in the past week, it’s fair to say that common sense is in short supply now.
Keeping a level head at this moment is crucial if you want to avoid mistakes.
To make the most of the market downturn, we should lean on the foundations of good investing.
We are simply looking to buy great businesses to hold for the long term.
That’s what Smart Investors do.
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Disclosure: Chin Hui Leong does not own any of the shares mentioned.
Photo source: Modified from Warren Buffett Caricature by DonkeyHotey under Creative Commons 2.0.
