Berkshire Hathaway CEO Warren Buffett doesn’t care how well the companies he’s invested in did last year — he’s more concerned with how they perform over decades.
“We’ve made a lot of money in stocks over time,” he told CNBC’s Becky Quick during an interview on “Squawk Box” in February. “But there’s been years when we’ve lost money, too.”
While he expects Berkshire to come out ahead over time, “we haven’t got the faintest idea what years we’ll be up or down,” he says.
Buffett chooses companies that he believes will perform well long-term, regardless of how they’re doing at any given point. This “buy and hold” strategy is one he has reiterated time and time again. When deciding if he should put money into a company, longevity has always been a major consideration.
“We sort of know it when we see it,” Buffett said during the Berkshire Hathaway 2017 Annual Shareholders Meeting. “It would tend to be a business that for one reason or another we can look out five or 10 or 20 years, and decide that the competitive advantage that it had at the present would last over that period.”
Because of that, he doesn’t pay attention to the news when making investment decisions.
“I’m not buying them because I think they’re going to go up the next day or the next week,” he told Quick in February. “We watch the prices of things we do more than current events.”
How to use Buffett’s investing strategy yourself
Like Buffett, the average investor putting away money for retirement should concentrate on their long-term goals, not what’s happening in the short-term.
When the market tanks, don’t panic and sell. Stay the course and trust your original plan. If you start saving for the future in your twenties, you have 40 years for your portfolio to recover from any rises and dips it faces.
“The money is made in investments by investing and by owning good companies for long periods of time,” Buffett told CNBC in 2016.
The Oracle of Omaha also recommends index funds, such as the S&P 500, which you can think of as buckets that hold numerous stocks at once. Because of that, the stocks balance each other out so the index isn’t tied to the success of any one company.
“The trick is not to pick the right company,” Buffett told CNBC’s “On The Money” in 2017. “The trick is to essentially buy all the big companies through the S&P 500 and to do it consistently.”
“Keep buying it through thick and thin — and especially through thin,” he added.
It’s okay to change your investment strategy over time, but you should be careful to avoid knee-jerk reactions based on the daily news cycle. It’s also smart to work with a trusted financial professional, who can answer questions and give educated advice based on your individual situation.
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Warren Buffett
David A. Grogan | CNBC
