Warren Buffett talks about how to invest for 2023. Warren Buffett's investment strategy is reflected in the portfolio Buffett manages for his company, Berkshire Hathaway. Buffett's investment approach has been detailed in countless interviews and speeches he has given. Buffett looks for stocks that are within his circle of competence, where the business is managed by an exception management team, and the stock is trading for less than its intrinsic value. This last point provides Buffett with a margin of safety. This investment philosophy has led Buffett to purchase stocks such as Apple, Coca-Cola, American Express, and many more. Here are 4 lessons from Buffett that investors should be implementing into their investment strategy for 2023.
Number one on our list is to view price declines as a buying opportunity. Prior to 2022, the last decade or so in the US stock market was one of the longest bull runs ever. The S&P 500 bottomed in March of 2009 at around 750. It ended 2021 at nearly 4,800. This was a total return of over 540%, one of the best times in the history of the stock market. There was a feeling among many investors that stocks could only go up. Well, 2022 was a different story. 2022 proved that stocks can in fact go down. Most people view stock market declines as a bad thing. Warren Buffett makes the argument that if you are in the period of your life where you are still saving money and investing it, you should be happy when stock prices fall. In a 2020 interview with CNBC, Buffett said "net buyers" of stocks benefit when the stock market goes down. By "net buyers," he means investors who do buy more stocks than they sell. Given that most of the viewers of this channel are under the age of 65, if you're watching this video, there’s a good chance that you are what Buffett refers to as a net buyer of stocks and should get excited when the stock market falls.
Number two on our list is to only buy stocks in businesses you understand. Ever since the early days of the stock market and Wall Street, people have been tempted to buy stocks in businesses they know absolutely nothing about. This trend arguably hit an all time peak in 2020 and 2021. Legendary investor Peter Lynch used to tell the story of the guy that would hear a stock tip while on the bus to work and would go out and put a large portion of his savings into a stock he knew nothing about. This guy would buy the stock just hoping it would go up. Almost always the stock would go down in price and the guy would panic sell because he had no idea what the company was in the first place. Replace the word “bus” in that story with the word “internet” and it sounds a lot like what happened in 2020 and 2021. People would hear about a stock on the internet, including even here on Youtube, and would buy it without having a clue about the business. Buying stocks that you don’t have a deep understanding of is arguably one of the easiest ways to lose a lot of money in the stock market. This is where Warren Buffett’s concept of the Circle of Competence comes in. The concept of the Circle of Competence has been used over the years by Warren Buffett as a way to focus investors on only investing in stocks they know best. This is what Buffett had to say about the concept in his 1996 shareholder’s letter: What an investor needs is the ability to correctly evaluate selected businesses. Note that word “selected”: 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.”
Next on our list is to ignore economic predictions. Just type in the words 2023 recession into google or here on youtube and you will be flooded with articles and videos about how the economy is going to enter a massive recession next year. It's human nature to want to be able to successfully predict a recession. To be able to sell all your stocks right before the economy crashes. Wait until stock prices hit a bottom and then get back into the market and ride the wave back up to the top. This is many investors' perfect dream. However, Buffett says factoring in economic predictions is the wrong way to go about investing. At the 2015 Berkshire Hathaway annual meeting, Buffett even went as far as to say any company that has an economist on its payroll has one too many employees.
Buffett was talking to a college class when he was asked a question by a student about the economy and whether now was a good time to invest because the economy might be heading into a recession. This is what Buffett had to say: “What you really want to do in investments is figure out what is important and knowable. If it is unimportant and unknowable, you forget about it. Macro factors are important, but, in my view, it is not knowable
