In 2011, the United States government had their first credit downgrade (from a AAA to AA+) over concerns of budget deficits. This was truly a unique scenario as the United States had always been viewed as the gold standard in terms of credit rating.
During this period, Warren Buffets portfolio saw a max drawdown of almost 22%. In dollar terms, that means a $1million portfolio contracted to $780,000 and didn't recover for 316 days. However, this was just an unwarranted blip in the success story that is Warren buffets portfolio!
His portfolio was full of resilient companies with strong growth potential that weren’t at risk of bankruptcy. Volatility is a given in the world of investments but how you handle it will determine whether you build or destroy wealth. Going through contractionary periods isn’t fun but can be very beneficial as it allows our portfolio managers to purchase amazing companies at bargain prices, helping returns significantly going forward.
Here’s a few tips from the Oracle from Omaha on how you can stay calm during turbulent times
1. Turn off the stock market:
As long as you are invested in quality companies, and that you did not overpay for those companies, it does you no good to watch the stock market every day.
2. Do not worry about the economy:
The economy is something that is out of our control. Even trained economists get it wrong more often than not. We are, however, able to control what companies we own in the portfolio and as long as you own quality companies that won’t be wiped out due to a recession or bump in the road, then this is sound advice.
3. Buy a business, not a stock:
Most retail investors treat the stock market as a means to speculate on stocks however, this should not be how we view (or use) the stock market.
The stock market is a tool that allows everyday people the ability to take ownership positions in businesses and therefore share in the earnings. Change how you view stock ownership, and the bumps in the road will matter much less to you.
4. Manage a portfolio of businesses
Don’t focus in on just one holding. View your portfolio of businesses wholistically. A well diversified portfolio will have many different assets such as cash/bonds/stocks that allow us to rebalance when one asset is down more than others.
As always, If you have any questions or concerns, please reach out to us!