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Investor Behavior: A Lesson from Warren Buffett

Investor Behavior: A Lesson from Warren Buffett

June 28, 2022
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Friends,

The above phrase kept coming to mind as markets slipped into bear market territory this month. This is when investor sentiment towards the market starts to plummet and, undoubtedly, where most mistakes are made. A strong plan and disciplined execution will benefit the long-term investor. 

Are others fearful? 

According to Reuters, investors liquidated about $30 billion in both equities and bonds in the week ended June 15th. This after the S&P 500 dropped about 9% for the month of June at that time. To answer the question, yes, some are fearful, but as indexes reach 52-week lows there is research´╗┐ that suggests a silver lining. In the past, investing near 52-week low periods shows higher returns by 8% and 6% over 2 and 3-year periods according to Stansbury Research.

 

 Is now the time to be greedy? 

Now is the time to execute on the plan we have built with clients and their families in a disciplined manner. Understand the level of risk you’re willing to take over a long period of time. If during that time markets sell off, rebalance to take advantage of the rebound. A critical error would be to join those who cumulatively contributed to the selling off of $30 billion in equities last week while they’re temporarily down if cash isn’t immediately needed. If there is more cash on hand – let’s discuss the best way to deploy those assets given the current market conditions. History would suggest (but the future certainly does not guarantee) that now would be a good time to invest long-term cash. 

We suggest client meetings once a quarter (and frequent discussion between them), in order to create a plan and strategy that reinforces disciplined investing rather than making emotionally charged decisions.

  

Matt and Andrew