Latest news with #OracleOfOmaha
Yahoo
a day ago
- Business
- Yahoo
4 Things Investors Should Do When Warren Buffett Steps Down
Legendary investor and 'Oracle of Omaha' Warren Buffett recently announced he will step down as CEO of his company, Berkshire Hathaway, at the end of 2025. Buffett has led the company for 60 years, guiding it from a struggling textile company to a huge — and hugely successful — conglomerate. Buffett built his company by relentless adherence to some basic investing principles. When he steps down, investors should continue to abide by his wisdom. Here are four things investors should continue to do when Warren Buffett steps down. Find Out: Read Next: Buffett is known for resisting the tendency to follow trends. For years, he didn't invest in tech stocks because he said he didn't understand them, although he has since bought Apple and other tech stocks. At the Berkshire Hathaway shareholder meeting in 2019, Buffett referred to his 'circle of competence,' and indicated that he primarily invested in companies within that hypothetical circle. Investors can continue to benefit from this philosophy by buying stock in companies they understand. A good place to start is by buying the stock of companies whose products you personally use. If a company solves a problem in a unique way, fulfilling a need that may otherwise go unfulfilled, it can often be a good investment. Watch Out: Buffett is a value investor, meaning he buys companies he feels are undervalued relative to others in their sector, and holds onto them until the market catches up. Finding a good company is fairly easy. You look for companies that are well-respected in the marketplace, that innovate and that are fair to their employees. But how do you know if a company's stock is available at a good price? Value investors like Buffett look at a number of fundamental metrics to determine if a company is a good value, but one of the most important is the price to earnings ratio, often called the P/E ratio. This is the relationship between the price of the company's stock compared to its earnings per share over the past 12 months. It's the amount an investor will pay for a dollar of earnings. If a company's P/E ratio is low compared to its competitors, it may be a good value, since investors are paying higher prices for similar companies. Buffett is famous for saying, 'Our favorite holding period is forever.' He will buy stocks and hold them for a long time, years or even decades. Analysts carefully watch which stocks he buys and which ones he sells as they know he is nothing if not patient. Investors can follow Buffett's path by holding on to their investments despite ups and downs. As long as the trajectory is generally up, and the fundamentals remain strong, holding on is a good philosophy. Perhaps the most well-known of Buffett's truisms, his philosophy of buying when others are selling and selling or holding when others are buying may be one of his most effective tools. It may also be the hardest to follow. Buffett has been a hugely successful investor by sticking with this philosophy, so it's hard to argue with its efficacy. But emotionally, it can be difficult to watch stocks drop and think of buying, or to hold your positions as they decline. It can also be difficult to refrain from buying when the market is on a tear. But Buffett's consistent success, decade after decade, is hard to argue with. At year end, Buffett will hand the reins over to Greg Abel, the 62-year-old current vice chairman of non-insurance operations at Berkshire Hathaway. Abel follows Buffett's philosophy closely, and it's likely the company will continue to flourish under his leadership. By continuing to adhere to Buffett's principles, your portfolio may flourish too. More From GOBankingRates Mark Cuban Says Trump's Executive Order To Lower Medication Costs Has a 'Real Shot' -- Here's Why This article originally appeared on 4 Things Investors Should Do When Warren Buffett Steps Down
Globe and Mail
2 days ago
- Business
- Globe and Mail
Billionaire Warren Buffett's Favorite Valuation Tool Just Made Dubious History -- and It Couldn't Be Worse News for Wall Street
Key Points Warren Buffett's outsized investment returns at Berkshire Hathaway have made him Wall Street's most-followed money manager. Stocks are historically pricey, and the affably-named "Buffett Indicator" proves it. However, Buffett would never suggest betting against America and has positioned Berkshire's $296 billion investment portfolio and owned assets for long-term success. For decades, billionaire Warren Buffett has been Wall Street's most-followed money manager -- and for good reason. In his six-decade stead as the CEO of Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), the appropriately named "Oracle of Omaha" has overseen a cumulative return in his company's Class A shares (BRK.A) of 5,882,492%, through the closing bell on July 3. For context, this is over 140 times greater than the total return, including dividends, of the benchmark S&P 500 (SNPINDEX: ^GSPC) over 60 years. In addition to running circles around the S&P 500 over extended periods, Buffett's willingness to share his investment experiences and the traits he looks for in businesses has endeared him to the investing community. There's a reason around 40,000 people flock to Omaha annually to hear Berkshire's CEO offer remarks about the U.S. economy, stock market, and occasionally his company's investment holdings. But the unpleasant truth for Wall Street is that Buffett's words and/or actions don't always mesh with the buy-and-hold philosophy that's become synonymous with Berkshire Hathaway's nearly $296 billion investment portfolio. Worse yet, the valuation tool Berkshire's billionaire chief once held near and dear is making dubious history. Warren Buffett's "best single measure" of stock valuations is giving off all the wrong signals To preface any discussion on valuation, let's recognize that "value" is something of a subjective term. What one person views as expensive might be considered a bargain by another. This perspective of value is what makes the stock market a market. When most investors are valuing a publicly traded company, they tend to rely on the price-to-earnings (P/E) ratio. This traditional valuation measure divides a company's share price by its trailing-12-month earnings per share. It's a quick way to size up mature businesses, but it's not the most accurate tool during economic downturns or for growth stocks. However, the traditional P/E ratio isn't, necessarily, the go-to valuation tool for billionaire Warren Buffett. In a rare interview granted to Fortune magazine in 2001, Berkshire's billionaire chief described the market cap-to-GDP ratio as, "probably the best single measure of where valuations stand at any given moment." This measure, which has come to be known as the " Buffett Indicator," adds up the value of all publicly traded companies and divides it by U.S. gross domestic product (GDP). Warren Buffett Indicator just hit 207%, the most expensive valuation in history 🚨 Bullish? 😂 -- Barchart (@Barchart) July 2, 2025 When back-tested 55 years to 1970, the Buffett Indicator has averaged a reading of 85%. In other words, the cumulative value of publicly traded companies has equated to 85% of U.S. GDP. But as you can see from the post above on X (formerly Twitter), the Buffett Indicator has surged to a fresh all-time high. As of the closing bell on July 2, the Buffett Indicator hit 209.53%, which is roughly a 147% premium to its 55-year average. The implication here is very simple: Stocks are exceptionally pricey. When equities are pricey, the Oracle of Omaha has demonstrated a willingness to pare down Berkshire Hathaway's exposure and/or sit on his proverbial hands until attractive deals reveal themselves. Perhaps unsurprisingly, Berkshire's consolidated quarterly cash flow statements show Buffett has been a net seller of stocks for 10 consecutive quarters (Oct. 1, 2022 – March 31, 2025), totaling an aggregate of $174.4 billion. In fact, Buffett is such a stickler for getting a good deal that he's gone cold turkey on repurchasing shares of his favorite stock (Berkshire Hathaway) for three consecutive quarters. The Buffett Indicator surging to almost 210% is terrible news for Wall Street in the sense that it signals value is becoming increasingly hard to come by. It also suggests Berkshire's brightest investment mind is going to continue to sit on his company's record-breaking cash pile of $347.7 billion (including U.S. Treasuries). The Oracle of Omaha will never bet against America Getting a perceived deal when buying a company or taking a stake in a publicly traded business is an absolute must for billionaire Warren Buffett. But this isn't the only unbendable rule he lives by. Even when stock valuations are historically unappealing, Berkshire's head honcho has no intention of ever better against Wall Street or America. In Berkshire Hathaway's 2021 annual letter to shareholders, Buffett penned: Despite some severe interruptions, our country's economic progress has been breathtaking. Our unwavering conclusion: Never bet against America. These four words, "never bet against America," signal Buffett's recognition of economic and stock market cycles, and his genius of positioning his company to take advantage of a simple numbers game. Berkshire's chief and his top investment advisors are well aware that economic recessions are normal, healthy, and inevitable. But most importantly, Buffett recognizes the nonlinearity of economic cycles. Whereas the average U.S. recession has endured for just 10 months since the end of World War II, the typical economic expansion has stuck around for approximately five years. The disproportionate nature of these cycles has allowed U.S. GDP to meaningfully expand over time. Perhaps it's no surprise that Berkshire's investment portfolio and the roughly five dozen companies that have been acquired since Buffett became CEO tend to be highly cyclical and benefit immensely from long-winded periods of economic growth. The Oracle of Omaha also realizes that this nonlinearity applies to the stock market. Even though downturns are inevitable, they usually resolve quickly. In June 2023, a data set published on X from Bespoke Investment Group showed the average S&P 500 bear market since the start of the Great Depression (September 1929) lasted only 286 calendar days, or about 9.5 months. In comparison, the typical S&P 500 bull market endured for 1,011 calendar days over this nearly 94-year-period. Wagering on high-quality companies to increase in value over time is a statistically smart move. While a historically high Buffett Indicator is nothing short of damning to Wall Street over the short-term, an eventual correction or bear market will give way to phenomenal investment opportunities -- and Buffett or his successor Greg Abel will be there to take advantage of them. Should you invest $1,000 in Berkshire Hathaway right now? Before you buy stock in Berkshire Hathaway, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Berkshire Hathaway wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $699,558!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $976,677!* Now, it's worth noting Stock Advisor 's total average return is1,060% — a market-crushing outperformance compared to180%for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor. See the 10 stocks » *Stock Advisor returns as of June 30, 2025
Yahoo
2 days ago
- Business
- Yahoo
Billionaire Warren Buffett's Favorite Valuation Tool Just Made Dubious History -- and It Couldn't Be Worse News for Wall Street
Warren Buffett's outsized investment returns at Berkshire Hathaway have made him Wall Street's most-followed money manager. Stocks are historically pricey, and the affably-named "Buffett Indicator" proves it. However, Buffett would never suggest betting against America and has positioned Berkshire's $296 billion investment portfolio and owned assets for long-term success. 10 stocks we like better than Berkshire Hathaway › For decades, billionaire Warren Buffett has been Wall Street's most-followed money manager -- and for good reason. In his six-decade stead as the CEO of Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), the appropriately named "Oracle of Omaha" has overseen a cumulative return in his company's Class A shares (BRK.A) of 5,882,492%, through the closing bell on July 3. For context, this is over 140 times greater than the total return, including dividends, of the benchmark S&P 500 (SNPINDEX: ^GSPC) over 60 years. In addition to running circles around the S&P 500 over extended periods, Buffett's willingness to share his investment experiences and the traits he looks for in businesses has endeared him to the investing community. There's a reason around 40,000 people flock to Omaha annually to hear Berkshire's CEO offer remarks about the U.S. economy, stock market, and occasionally his company's investment holdings. But the unpleasant truth for Wall Street is that Buffett's words and/or actions don't always mesh with the buy-and-hold philosophy that's become synonymous with Berkshire Hathaway's nearly $296 billion investment portfolio. Worse yet, the valuation tool Berkshire's billionaire chief once held near and dear is making dubious history. To preface any discussion on valuation, let's recognize that "value" is something of a subjective term. What one person views as expensive might be considered a bargain by another. This perspective of value is what makes the stock market a market. When most investors are valuing a publicly traded company, they tend to rely on the price-to-earnings (P/E) ratio. This traditional valuation measure divides a company's share price by its trailing-12-month earnings per share. It's a quick way to size up mature businesses, but it's not the most accurate tool during economic downturns or for growth stocks. However, the traditional P/E ratio isn't, necessarily, the go-to valuation tool for billionaire Warren Buffett. In a rare interview granted to Fortune magazine in 2001, Berkshire's billionaire chief described the market cap-to-GDP ratio as, "probably the best single measure of where valuations stand at any given moment." This measure, which has come to be known as the "Buffett Indicator," adds up the value of all publicly traded companies and divides it by U.S. gross domestic product (GDP). When back-tested 55 years to 1970, the Buffett Indicator has averaged a reading of 85%. In other words, the cumulative value of publicly traded companies has equated to 85% of U.S. GDP. But as you can see from the post above on X (formerly Twitter), the Buffett Indicator has surged to a fresh all-time high. As of the closing bell on July 2, the Buffett Indicator hit 209.53%, which is roughly a 147% premium to its 55-year average. The implication here is very simple: Stocks are exceptionally pricey. When equities are pricey, the Oracle of Omaha has demonstrated a willingness to pare down Berkshire Hathaway's exposure and/or sit on his proverbial hands until attractive deals reveal themselves. Perhaps unsurprisingly, Berkshire's consolidated quarterly cash flow statements show Buffett has been a net seller of stocks for 10 consecutive quarters (Oct. 1, 2022 – March 31, 2025), totaling an aggregate of $174.4 billion. In fact, Buffett is such a stickler for getting a good deal that he's gone cold turkey on repurchasing shares of his favorite stock (Berkshire Hathaway) for three consecutive quarters. The Buffett Indicator surging to almost 210% is terrible news for Wall Street in the sense that it signals value is becoming increasingly hard to come by. It also suggests Berkshire's brightest investment mind is going to continue to sit on his company's record-breaking cash pile of $347.7 billion (including U.S. Treasuries). Getting a perceived deal when buying a company or taking a stake in a publicly traded business is an absolute must for billionaire Warren Buffett. But this isn't the only unbendable rule he lives by. Even when stock valuations are historically unappealing, Berkshire's head honcho has no intention of ever better against Wall Street or America. In Berkshire Hathaway's 2021 annual letter to shareholders, Buffett penned: Despite some severe interruptions, our country's economic progress has been breathtaking. Our unwavering conclusion: Never bet against America. These four words, "never bet against America," signal Buffett's recognition of economic and stock market cycles, and his genius of positioning his company to take advantage of a simple numbers game. Berkshire's chief and his top investment advisors are well aware that economic recessions are normal, healthy, and inevitable. But most importantly, Buffett recognizes the nonlinearity of economic cycles. Whereas the average U.S. recession has endured for just 10 months since the end of World War II, the typical economic expansion has stuck around for approximately five years. The disproportionate nature of these cycles has allowed U.S. GDP to meaningfully expand over time. Perhaps it's no surprise that Berkshire's investment portfolio and the roughly five dozen companies that have been acquired since Buffett became CEO tend to be highly cyclical and benefit immensely from long-winded periods of economic growth. The Oracle of Omaha also realizes that this nonlinearity applies to the stock market. Even though downturns are inevitable, they usually resolve quickly. In June 2023, a data set published on X from Bespoke Investment Group showed the average S&P 500 bear market since the start of the Great Depression (September 1929) lasted only 286 calendar days, or about 9.5 months. In comparison, the typical S&P 500 bull market endured for 1,011 calendar days over this nearly 94-year-period. Wagering on high-quality companies to increase in value over time is a statistically smart move. While a historically high Buffett Indicator is nothing short of damning to Wall Street over the short-term, an eventual correction or bear market will give way to phenomenal investment opportunities -- and Buffett or his successor Greg Abel will be there to take advantage of them. Before you buy stock in Berkshire Hathaway, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Berkshire Hathaway wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $699,558!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $976,677!* Now, it's worth noting Stock Advisor's total average return is 1,060% — a market-crushing outperformance compared to 180% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of June 30, 2025 Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy. Billionaire Warren Buffett's Favorite Valuation Tool Just Made Dubious History -- and It Couldn't Be Worse News for Wall Street was originally published by The Motley Fool
Yahoo
27-06-2025
- Business
- Yahoo
Warren Buffett Has Put Almost $78 Billion to Work in His Favorite Stock Over 7 Years, and It Recently Fell 10% -- Is the Oracle of Omaha a Buyer?
Warren Buffett's track record -- a greater than 6,000,000% return in Berkshire Hathaway's Class A (BRK.A) shares since the mid-1960s -- has made him a popular follow on Wall Street. Though Buffett has been a net seller of stocks for 10 consecutive quarters, he's purchased his favorite stock with some degree of regularity since the midpoint of 2018. A 10% correction in Buffett's top stock may not be enough to entice him to purchase more. 10 stocks we like better than Berkshire Hathaway › Wall Street is full of successful money managers -- but few if any can command the attention of professional and everyday investors quite like Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett. The Oracle of Omaha's track record does the talking and explains why investors wait on the edge of their seats each quarter for the release of Berkshire's Form 13F, which allows investors to see which stocks he's been buying and selling. In the six decades Buffett has held the reins as CEO, Berkshire's Class A shares (BRK.A) have climbed by more than 6,000,000%! Comparatively, the benchmark S&P 500 has roared higher by around 41,000%, with the aid of dividends, since the mid-1960s. Though mirroring Buffett's trading activity has been a seemingly surefire investment strategy for decades, you might be shocked to learn that Berkshire Hathaway's 13F doesn't tell the complete story regarding which stocks the Oracle of Omaha has been buying. With Buffett's undisputed favorite stock to buy over the last seven years declining by 10% from its recent all-time high, the question has to be asked: Is Berkshire Hathaway's billionaire chief a buyer, once more? While quarterly filed Form 13Fs help lay out the specifics of the stocks Buffett has been buying and selling, Berkshire Hathaway's quarterly cash flow statements have been even more telling. For instance, the company's March-ended quarter shows that $3.183 billion in equity securities were purchased and $4.677 billion in equity securities were sold. Some simple subtraction yields net selling during the first quarter of $1.494 billion. This has been a common theme for Berkshire Hathaway, with the Oracle of Omaha being a net seller of stocks in each of the last 10 quarters (since Oct. 1, 2022). The cumulative total of this net-selling activity equates to $174.4 billion, through March 31, 2025. Despite selling far more than he's been buying, Buffett and his top advisors have added to or opened select positions during this 30-month stretch. For example, shares of Domino's Pizza (NASDAQ: DPZ) have been bought by Berkshire Hathaway for three consecutive quarters. Buffett tends to be a big fan of businesses that can earn the trust of consumers. Domino's mea culpa advertising campaign in the late 2000s, coupled with its transparent marketing in the wake of this campaign, helped the company hang onto existing customers while still appealing to new people. Domino's Pizza also has a knack for delivering on its five-year growth plans. The latest of these plans, which was introduced in late 2023 and dubbed "Hungry for MORE," relies on technology to improve output and make the company's supply chain more efficient. Further, franchisees play a key role in Hungry for MORE by continuing to build up the Domino's brand domestically and in overseas markets, where the company is working on more than three decades of annual same-store sales growth. But Domino's Pizza isn't the stock Warren Buffett has spent nearly $78 billion of his company's capital purchasing since July 2018. For that matter, it's not Berkshire's largest holdings -- Apple, American Express, Bank of America, or Coca-Cola -- either. For a detailed breakdown of the Oracle of Omaha's buying activity of his undisputed favorite stock, you'll need dig into Berkshire's quarterly operating results. On the page immediately preceding the executive certifications, you'll find to-the-dollar details of how much Buffett has spent buying the stock he holds nearest and dearest to his heart... Berkshire Hathaway. Prior to mid-July 2018, repurchasing shares of Berkshire Hathaway stock could only be undertaken if shares fell to or below 120% of book value (i.e., no more than a 20% premium to listed book value, as of the most recent quarter). Since Berkshire's stock never fell to or below this threshold, not a dime of the company's capital was put toward buybacks. On July 17, 2018, Berkshire's board amended its share-repurchase program to allow Buffett and then-right-hand man Charlie Munger the liberty to deploy their company's cash for buybacks as they saw fit. As long as Berkshire has at least $30 billion in combined cash, cash equivalents, and U.S. Treasuries on its balance sheet, buybacks can be made with no end date or ceiling. From July 17, 2018, to June 30, 2024, Warren Buffett spent close to $78 billion repurchasing his company's stock. This absolutely dwarfs the amount he's spent buying any other individual stock over this timeline. But between May 2 and June 17, Berkshire's Class A (BRK.A) shares entered correction territory by declining 10.4% from their all-time high. Is this dip enough to entice Buffett, who's sitting on a record treasure chest of $347.7 billion in cash, cash equivalents, and U.S. Treasuries, to buy even more of his favorite stock? Interestingly enough, the answer is likely "no." If there's one unwritten rule the Oracle of Omaha finds unbendable, it's the idea of getting a good deal. Regardless of how dominant or well-positioned a company may be, he won't chase after a stock that isn't trading at what he perceives to be a fair price. This includes shares of his own company. Over the previous three quarters (July 1, 2024 to March 31, 2025), Buffett has gone cold turkey and not repurchased a single share of his company's stock. This broke a streak of having bought back shares for 24 consecutive quarters. Berkshire Hathaway's price-to-book value tells the tale of why the company's biggest cheerleader is no longer buying back shares. Between July 2018 and June 2024, Berkshire's stock consistently hovered around a 30% to 50% premium to book value. Over the prior three quarters, this premium has been vacillating between 60% and 80%, which is too rich for Buffett. Even accounting for Berkshire Hathaway's recent 10% correction, its price-to-book hasn't dipped below a 60% premium. Unless shares get closer to a premium of 50%, it's unlikely Buffett will deploy any of his company's record-breaking capital for buybacks. Before you buy stock in Berkshire Hathaway, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Berkshire Hathaway wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $687,731!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $945,846!* Now, it's worth noting Stock Advisor's total average return is 818% — a market-crushing outperformance compared to 175% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of June 23, 2025 Bank of America is an advertising partner of Motley Fool Money. American Express is an advertising partner of Motley Fool Money. Sean Williams has positions in Bank of America. The Motley Fool has positions in and recommends Apple, Bank of America, Berkshire Hathaway, and Domino's Pizza. The Motley Fool has a disclosure policy. Warren Buffett Has Put Almost $78 Billion to Work in His Favorite Stock Over 7 Years, and It Recently Fell 10% -- Is the Oracle of Omaha a Buyer? was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
22-06-2025
- Business
- Yahoo
Warren Buffett's Best Advice for Choosing the Right Investments
Being an early adopter of strong investment principles takes on a whole new meaning when you look at Warren Buffett's history. At age 11, he bought his first stock in the stock market and purchased his first lot of real estate at 15. Today, the prophetical investor, CEO of the company Berkshire Hathaway and Oracle of Omaha has an estimated net worth of $153.1 billion. Read Next: Learn More: So, if he gives you some investment strategies to try, you should probably take notes. Buffett has generously shared his expertise over the years, offering his advice in interviews and letters to Berkshire Hathaway shareholders. Here are his top four intuitive tips Buffett has historically given out for everyday investors who want to choose the right investments. In his 2022 letter to shareholders, he wrote: 'We own publicly traded stocks based on our expectations about their long-term business performance, not because we view them as vehicles for adroit purchases and sales. Charlie [Munger] and I are not stock-pickers; we are business-pickers.' Buffett isn't the kind of go-go-go investor Hollywood likes to profile. He doesn't buy low, sell high and buy low again before lunch. Instead, he researches companies' operations, news and balance sheets, and he invests in those he believes will do well in the long term. As Buffett's business partner for nearly 50 years, Munger was instrumental in helping Buffett identify good deals. Find Out: During the 2008 economic recession, Buffett reminded his shareholders of the importance of value. Although the value of his investments had dropped along with the market, he didn't worry. He even used his purchasing power to buy more of certain stocks. 'Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down,' Buffett said. Of course, Buffett knows that not every low-priced stock is a good value. He quotes his mentor, Ben Graham, who said, 'Price is what you pay; value is what you get.' Finding those valuable purchases requires research and a commitment to finding good companies, not just cheap stocks. One of Buffett's hard-and-fast rules is only investing in businesses he understands. He tracks a company over time to see how it's doing and whether he believes it will continue to grow. Buffett understands a great deal about many kinds of businesses, but he believes his approach works even for those without 60-plus years of investment experience. As long as you invest in businesses you understand, he says, you're on the right track. As he wrote to shareholders in his 1996 Berkshire Hathaway letter: 'You don't have to be an expert on every company or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important. Knowing its boundaries, however, is vital.' Avoiding an investment you don't understand can be just as valuable as saying yes to one you do. Buffett picks his stocks because he knows the business. He also knows that not everyone is an expert, so he recommends low-cost index funds to most non-professionals. He's said it in no uncertain terms multiple times. In his 1996 letter, he wrote, 'Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results … delivered by the great majority of investment professionals.' He said it again in 2013. 'The goal of the non-professional should not be to pick winners — neither he nor his 'helpers' can do that– but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal.' An index fund is an investment product that tracks the performance of a market index, which measures the performance of a group of assets. The S&P 500 tracks the 500 highest-valued equities in the U.S. market. S&P index funds divide investments among those stocks, each in a different way. Warren Buffett plays the long game. He believes in the market's general upward trajectory, and more importantly, he thinks that trend is much more important than daily price quotes. As he told Berkshire shareholders in 2016, 'If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes.' Buffett trusts the market's long-term growth, including indices like the S&P 500. He's made his billions buying good companies that can ride that growth, and he believes others can do the same. In short, if you want to invest like Buffett, buckle in for the long run. Caitlyn Moorhead contributed to the reporting for this article. More From GOBankingRates Mark Cuban Says Trump's Executive Order To Lower Medication Costs Has a 'Real Shot' -- Here's Why This article originally appeared on Warren Buffett's Best Advice for Choosing the Right Investments Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
