Just last Friday, the S&P 500 had closed at a record high. This week, the stock market can't seem to find its footing, with the major indexes slumping again Tuesday.
In such a volatile market, what can we learn from investment gurus, such as Warren Buffett?
Buffett is considered one of the most successful investors in the world and the world's seventh-wealthiest person.
“Warren's buying opportunity is price dictated. Just because he has recognized that a company possesses a durable competitive advantage doesn't mean he will pay any price for it.”
——Mary Buffett and David Clark, authors of the 2002 book, “The New Buffettology”
In market downturns, Buffett believes it's an opportunity to buy good companies at reasonable prices.
Adopting a selective contrarian style in a bear market, Buffett made some large investments in blue-chip stocks when their stock price is very low.
And his investments often are in a class of secured stock with its dividends assured and future stock warrants available at below-market prices.
Charles Munger is an American billionaire investor and vice chairman of Berkshire Hathaway, the conglomerate controlled by Warren Buffett.
1. Avoid the investment herd in a bull market
"Mimicking the herd invites regression to the mean."
2. Wait for buying opportunities in a bear market
"The big money is not in the buying and selling... but in the waiting."
3. Research beforehand and respond quickly to movements
"Our game is to recognize a big idea when it comes along when one doesn't come along very often. Opportunity comes to the prepared mind."
As the manager of the Magellan Fund at Fidelity Investments between 1977 and 1990, Lynch averaged a 29.2% annual return, consistently more than double the S&P 500 stock market index.
1. A market decline is regular
“A stock market decline is as routine as a January blizzard in Colorado. If you're prepared, it can't hurt you.
A decline is a great opportunity to pick up the bargains left behind by investors who are fleeing the storm in panic.”
2. Focus on company fundamentals
“Nobody can predict interest rates, the future direction of the economy or the stock market. Dismiss all such forecasts and concentrate on what's actually happening to the companies in which you've invested.”
3. Buy undervalued stocks
“When stocks are attractive, you buy them. Sure, they can go lower. I've bought stocks at $12 that went to $2, but then they later went to $30. You just don't know when you can find the bottom.”
Ray Dalio is a billionaire investor and Bridgewater Associates hedge fund magnate.
1. Dalio's best advice for the individual investor is not to try and anticipate or react to market moves at all.
“The greatest mistake of the individual investor is to think that a market that did well is a good market rather than a more expensive market. And that a market that did badly is a worse market ... rather than a cheaper market.”
That's because big financial firms have an information advantage that is tough to compete with for regular investors.
“The best thing is, don't play the game, because it is pros against you.”
2. Instead, create a diversified portfolio and hold steady.
“The best thing you can do is know how to have a balanced portfolio ... because you ain't going to win that game.”
Are you interested in more tips from business tycoons? Check out Guru Lesson
We invite you to share your investing strategies — how do you hedge downturn risks? what is your stock investing criteria?
Any thoughts are welcome!