17 January 2021
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AP Photo/Nati Harnik, File

As stocks fall today, think like Warren Buffett

Peter Switzer
21 December 2020

Normal people look at the latest Coronavirus chaos delivered on Sydney and the state of New South Wales and worry about their Christmas get togethers, their holidays being cancelled and what happens to the money they’ve outlaid for an activity that isn’t going to happen?

And of course, it’s not just an NSW problem as the CEOs of Qantas and Virgin would tell you along with every travel and hospitality business that now has to deal with the fallout of the latest infections coming from Sydney’s northern beaches and possibly introduced by a quarantine bus driver who copped it from infected arrivals from OS.

We now have to wait to see how bad this second-wave problem is and most of us are hoping that it is quickly contained like how the Crossroads Hotel virus breakout was in early July this year.

By August 1 the ABC reported only 57 cases came out of that debacle and so let’s hope the COVID-19 seek and destroy team can do their best work on the virus again but the residual damage to Christmas cheer is going to compete with the havoc bushfires delivered for this special annual event last year.

This is all the kind of reaction a normal person would have but how would one of the world’s greatest investor, Warren Buffett, look at this 2020 Christmas disaster?

As a human being he would be emotionally affected by all of this disastrous stuff ahead of Christmas, like most of us, but as an abnormal investor he would process the market reaction differently.

His stance on shares is that you should not be looking at stocks like it’s a gamble but more from the point of view of:

  • Do you want to own this business?
  • Is this business going to keep on getting better, more profitable and more valuable over the next 10 or even more years?
  • And does this business have a ‘moat’ around it that protects its competitive advantage and therefore its profitability and potential for growth?

Today stocks that will benefit from the reopening trade as normalcy eventually returns will be sold off by short-term players, so Webjet and Flight Centre should have a bad day at the office.

On the other hand, Wesfarmers that owns Bunnings, Coles and Woolworths should benefit as shoppers stock up for an uncertain future.

And so this is the time that Buffett wannabes will be looking for good companies that fall out of favour today and maybe over the next week or two but which one day will rebound.

On tonight’s Switzer TV: Investing, my experts and I will name those sorts of companies after watching today’s action.

And for those who need to learn a thing or two about investing from one of the best — Wazza Buffett — here are some of his pearls of wisdom:

  • “Never invest in a business you cannot understand.”
  • “It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.”
  • “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
  • “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”
  • “Remember that the stock market is a manic depressive.”

There’s a lot more of these out there if you go looking but the one I’ve used to great effect this year has been: “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful.”

I will be looking for good quality stocks in coming days that are victims of fear.

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