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how does the greatest investor of all time Warren Buffett think the average person should be investing during a stock market crash and I know what you're thinking heish we're not in a stock market crash and you're right we're not in a stock market crash the market is up a pretty normal amount this year and even though the last few weeks have been pretty rough there isn't anything screaming that a stock market crash is coming well except Jeremy Grantham but he's always screaming but anyway the point of this video is to make sure that you're prepared for when a stock market crash inevitably does happen at some point in the future because once it does begin it's already too late these events when they do happen don't come around very often and even though they can be scary they're actually the best time for investors to make a lot of money and the tips provided by Warren Buffett today especially tip number two will help you make the most of these opportunities some people should not own stocks at all cuz they just get too upset with price fluctuations if you're going to do dumb things because your stock a stock goes down you shouldn't know a stock at all what are Dum things selling a stock yeah selling a stock as it goes down I mean time in the market is much more important than timing the market and this idea is particularly important when it comes to stock market crashes everyone thinks they can avoid a stock market crash by selling their Shares near the top and buying back in near the bottom and while it does seem like this is something you could do it's not there isn't a single stock market crash that looks the same as one that has occurred before some last for years others just a few weeks some are 30% declines others are 10% or 12% and they certainly don't follow the same pattern every time I bet you've probably seen this chart before which is supposed to show you how stock market crashes play out but the funny thing about this chart is that there's never been a stock market crash in the history of mankind which looked like this this is what real crashes look like or like this or this or this so if you think you can correctly figure out exact went to sell a stock and then buy back in well I can't stop you from trying but it will be one hell of a wasted opportunity I never know what markets are going to do there's never been a time in my life when I I I know what markets are going to do over a long period of time they're going to go up but uh in terms of what's going to happen in a day or a week or a month or a year even uh I I I've never felt that I knew it and I've never felt that was important I I I I will say that in 10 or 20 or 30 years I think stocks will be a lot higher than they are now Market crashes don't come around very often and even though it may seem counterintuitive you need as much time in these markets as possible the stock market goes up and down day by day month by month and even year by year but when we zoom out far enough the market always goes up businesses become more productive they innovate they make products cheaper than previously and they drive economic growth so the best and maybe really the only prediction you can make when investing broadly in the stock market is that over the very long term it's very likely the market will be higher than previously and on top of that there's actually a really simple way that you can make that exact bet by using something called an index fund we've had uh 14 presidents seven Republicans seven Democrats we've had we've had world wars we had 9/11 we had the Cuban Missile Crisis we have all kinds of things the best single thing you could have done on March 11th 1942 when I bought my first do which is buy an index fund and and and never look at a headline never think about stocks anymore just like it would do if you bought a farm you just buy an index fund is a stock that you can invest in that simply tracks the performance of a basket of individual companies such as vti which is an index fund created by the company Vanguard that tracks the entire US Stock Market you don't even need to pick which particular companies are going to thrive in the future you just buy an index fund and that basically means you buy all of them and for over aund years owning a piece of the US Stock Market in this way has been one of the best long-term Investments but how exactly should you use index funds when it comes to stock market crashes well there's basically two key rules that you need to remember buy consistently and never sell you want to make a regular habit of investing so setting up a dollar cost average strategy that works for you will help you achieve good results over the long term dollar cost averaging simply means to invest regular amounts at regular intervals and doing that helps you achieve two things the first is that stock market crashes can be scary so if you have a plan in place to invest at regular intervals throughout the year regardless of what happens you're far more likely to stick to that plan than deviate and act in some irrational manner the second is that if you're investing the same amount every month or every couple of months for example then as the stock market declines the amount of money that you're investing is going to be buying you more investment anytime stocks go down as far as I'm concerned I like it because I'm a net buyer of stocks I've been buying stocks ever since I was 11 years old so when stocks go down it's good news just like when hamburgers go down it's good news or Coca-Cola goes down it's good news in terms of anything I buy you can kind of think of it like if you were someone with a lot of money and you were buying up tons and tons of houses tons of real estate and then the real estate market collapsed well your money is just going to go further you're going to be able to buy more houses if it dropped 50% for example the same amount of money can now buy let's say twice as many houses well the same kind of thought process works in the stock market as the market comes down if you're still investing that ,000 every couple of months you're essentially buying more business which means over the long term you'll actually come out better and then you just never want to sell no matter how dire the situation seems and in order to satisfy or meet that principle you first have to only invest money that you're willing to forego over the long term money for example that you're putting aside to only M into at retirement for your retirement Nest EG and if you can do that and set money aside then you don't have to worry about the shortterm ups and downs of the market before I show you the next clip of Warren Buffett's tips for investing in a stock market crash I just want to briefly talk about a fantastic resource for stock market investors that I've been using over the past few years it's the sponsor of today's video Seeking Alpha Seeking Alpha is a massive online community of stock Pickers and the Premium plan has a ton of awesome features for investors expert analysis and news for thousands of different stocks to help you learn the ins and outs of what's going on with companies and the economy you can import and track your own portfolio including adding buy or sell price alerts there are consensus buy hold and sell ratings from Members Wall Street analysts and seeking Alpha's own algorithm you can screen for stocks using a variety of fundamental and technical analysis metrics access up to 10 years of financial data and Company filings also there's a ton of educational content to improve your skills including webinars podcasts and articles and for a very limited time you can get $50 off your first subscription as well as a 7-Day free trial so head to hotter.com seekingalpha or use the link in the description below to try Seeking Alpha out today I have an oldfashioned belief that I can only should expect to make money and things that I understand and when I say understand I don't mean understand you know what the product does or anything like that I mean understand what the economics of the business are likely to look at look like 10 years from now or 20 years from now now I know in general what the economics will say wrigly chewing gum will look like 10 years from now the Internet isn't going to change the way people chew gum it isn't going to change which gum they chew you know if you own the chewing gum Market in a big way and you've got double mint and spearmint and Juicy Fruit those Brands will be there 10 years from now so I can't pinpoint exactly what the numbers are going to look like on rley but I'm not going to be way off if I try to look forward on something like that if you're like me and have individual stocks as a part of your broader investing strategy then the rule that comes before everything else is that you should only invest in what you know Warren Buffett for most of his life has made big investments in companies that he loves and that he plans on holding forever so every time you buy an individual stock you should really be thinking of it like a lifetime commitment to learning more and engaging with that company and its industry you might think that sounds a little extreme but the field of investing is extremely competitive so if you're going to have any kind of edge over ju not only the average person but um most people in the market to actually outperform the market then you're going to have to stick to what you know and and find some kind of edge that you can build over multiple decades it's why I'm a big proponent of only investing in companies that you get really excited about businesses that you enjoy learning about in your spare time the way Buffett helps investors visualize this principle is through through something he calls circle of competence is the box that says knowns and important knowable and important is there anything in that box and can you tell what's in that box and what isn't in that box and it's what I call knowing your circle of competence the idea is that there will be a few Industries or business models that you'll come to understand and everything else should just be ignored no matter how tempting it is to jump into the next hot stock for Buffett it's banking energy and consumer facing products because of his expertise in purchasing Behavior I think I understand consumer Behavior a simple exercise to help Define your circle of competence is to list all of the things that you have more knowledge about than the average person maybe from your career or hobbies and then also list your passions and interests and also a list of products and services that you use the most simply being a customer in a particular Market or industry can often give you a great understanding of why certain companies succeed and why others don't and speaking of companies that have found consistent success Buffett loves to only buy the highest quality companies those with deep roots in the industry and a proven ability to remain at the top and there's a pretty good reason for wanting to do this it's two words Capital preservation the first role in investment is don't lose and the second rule of investment is don't forget the first rule investing isn't really about growing your money as much as possible it's mostly about preserving what you have if you lose lots of money in the pursuit of making higher returns it's really really difficult to make that money back so first and foremost you want to prevent large permanent losses of capital and the best way to do that is by investing in great businesses and there's a lot of ways that people measure the quality of a business but the highest quality businesses all have a deep economic mode you know what we're what we're trying to do is we're trying to find a a business with a wide and longlasting Moor around it uh surround and with protecting a terrific economic castle with an honest Lord in charge of the castle an economic moat is some kind of unique trait that provides a sustainable competitive advantage over time in a qualitative sense emote could be something like a powerful brand that allows a business to price their products higher than competition but you can also quantitatively measure remote by looking at the company's return on Capital a good business is the one that earns a high rate of return on on tangible assets the idea here is that businesses with a deep economic moot will be able to generate higher Returns on Capital than their competition over long periods of time sustainably so going back to that brand example the brand the company with a deep brand that can price their products higher they're simply able to make more profit even though the manufacturing process and the day-to-day business operations May cost the same same so they'll generate a higher return which is their profit on the capital that they're investing than their competition I have a huge library of examples of different economic modes and how to identify them on my website I'll leave the link in the description below if you're interested it is crazy in my view to borrow money on Securities you you do not know tomorrow morning you don't know whether the stock exchange will open tomorrow morning I mean that we have closed the stock exchange one time during World War One we Clos it for months we closed it after 911 for a few days it when uh it it's it's I put in the annual it's insane to risk what you have in need for something you don't really need most Brokers will allow you to take on something called a margin loan it's essentially just debt that can be used to buy stocks and while it is available to you Buffett thinks you should stay far away as possible from it the main difference between using debt to buy stocks compared to other assets like uh taking on a mortgage to buy a property uh the volatility in the stock market and something called a margin call unlike property prices stock prices from time to time can go down significantly and if that happens and you're using debt you'll get a margin call your broker will essentially recognize that now that your stocks are down that the value of your portfolio is smaller and they'll ask you to put up more collateral or you might be forced to sell your stocks which is the absolute worst thing you could do during a stock market crash when you participate in the stock market you just have to kind of accept that prices will go up and down a lot and this will be more noticeable on individual companies but it's even true if you're just Index Fund investing so debt just shouldn't be a part of that equation and we're not just talking about the invested or you taking on debt it also applies to the individual companies you're investing in if a company is well if the stock market is crashing generally it's it's correlated with some kind of economic problem some kind of pain in the economy so businesses that don't have debt are far in a far better position to weather the storm than a company that's loaded up on debt and has to deal with that as well as say a recession at the same time a reminder to check out the limited time deal with Seeking Alpha it's the first link in the description below
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