10 Lessons of Sanity From Warren Buffett During Insane Markets

5. It’s OK to Change Your Mind and Outlook

It’s okay to change your opinion or outlook. This can be applied to sectors, stocks or even the market in times of extremity. Buffett personally would not have invested in the airline industry for many years. A multibillion-dollar airline bet was made by one of Buffett’s top new investment team members (Ted Weschler or Todd Coombs). By then the airlines had finally consolidated into a few companies with defendable moats, major pricing power on tickets, reliably low jet fuel prices and even the power to start gouging customers on fees and policies.

Buffett had in the past referred to the airline industry as a death trap, and Buffett had even gone as far in prior years to say that the best airline bet would have been to shoot the Wright brothers down. After the portfolio managers bought the major airlines, Buffett even ordered that Berkshire Hathaway should buy into Southwest Airlines Co. (NYSE: LUV), as Buffett told CNBC that he didn’t want Herb Kelleher thinking he did not favor Southwest out of the other legacy carriers.

It’s okay to change your mind about industries and sectors over time, and that needs to be considered if the prices of certain companies or sectors become too cheap during a market sell-off. Buffett also has rotated in and out of energy sector shares so many times that he obviously changes his mind about the future of oil and gas too.

6. Avoiding Bubbles

The media may use the term “bubble” more than they should, but sometimes valuations and asset prices rise too much. Missing a big run higher won’t send you to the poor house, but chasing a fad or a trend late in the game may burn an investor where their wallet was supposed to be. Many modern and classic investors still fight over how to view bitcoin, but bitcoin’s meteoric rise from under $1,000 to almost $20,000 (and then back under $10,000) should speak for itself. It’s easy to argue that Buffett (and most of the rest of us) missed the great bitcoin bubble inflating. He started calling bitcoin a mirage back in 2014.

If an investment or a financial class is too hard to understand, or if you just cannot agree on how sound the fundamentals are, then it’s fine to keep away and look elsewhere to invest within your risk tolerance. Buffett does not chase bubbles in technology or other areas of the stock market. This may have come with a lot of opportunity costs, but he likes to stick with what he can easily understand.

7. Picking Your Price for Value

A classic sense of investing in Buffett is one in which there just might be not just one single instance. Buffett has employed the theory of value investing for years, but that might not just be a low price-to-earnings (P/E) ratio. Buffett is willing to be opportunistic, and sometimes Joe Public can think like Buffett if it seems that the stock market carnage is becoming too great.

In this instance, the strategy would be to put together a list of the companies you think are the best run that will do well in the long-term business cycle changes and pick your price. If a stock was too expensive or had run too much without pullbacks at $50, think about what price you are willing to pay and set limit orders. If the market loses its sanity and the company’s stock drops to $35, you might be willing to own it there, even if you have no idea whether you caught the bottom. Credit Suisse even issued a list of potential Buffett acquisitions in early 2019.

Sponsored: Find a Qualified Financial Advisor

Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.