Investing is a lot like hiking. When you start off, its incredibly exciting and you're full of energy and optimism. But inevitably you reach a point of mental and physical exhaustion. You hit "the wall."
If you've been feeling this way lately on your investing journey, you're not alone. It's completely normal. But it's also important to know how to keep yourself going.
Image source: The Motley Fool.
Nuggets of wisdom from arguably the greatest investor of all time, Warren Buffett, can be an investing "power bar" of sorts when the going gets tough.
Recently, I've been reflecting on these three lesser-known Buffett quotes and have felt the wind return to my stock-buying sails.
1. Tremendous wealth comes out of the worst economic periods
In a 2016 letter to Berkshire Hathaway (BRK.A 0.55%) shareholders, Buffett penned one of his greatest, yet rarely mentioned quotes:
"Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold."
At 92 years young, Buffett has seen his fair share of economic downturns, and he understands that this is when the greatest opportunities abound. These periods can also be the most difficult times to invest because fear is at an all-time high.
Despite what it may seem, successful investing has much more to do with one's ability to control his or her emotions than it does with intelligence.
You can come up with sophisticated valuation models and brilliant risk-adjusted strategies, but if you can't bring yourself to buy when the market crashes, you're not likely to make much money.
2. Waiting for a better deal can cost you dearly
In a 2009 speech at Columbia University, Buffett imparted some sage advice about waiting for the right price. He said:
"Don't pass up something that's attractive today because you think you will find something better tomorrow."
The price of stocks is very important, as 2022 has taught investors in painful fashion. But you also need to understand there's a cost to leaving your capital on the sidelines for too long.
According to a study by TD Ameritrade and Morningstar, if you'd missed just the 10 best trading days between 2001 and 2020, your compound annual returns would be cut in half.
|
Compound annual returns from 2001-2020 |
|||
|---|---|---|---|
|
Invested for all 5,036 trading days |
Missed 10 best trading days |
Missed 20 best trading days |
Missed 50 best trading days |
|
7.4% |
3.3% |
0.7% |
-5.2% |
Data Source: TR Ameritrade. Stock data represents the Ibbotson® Large Company Stock Index.
Even at today's beaten-down prices, it's quite possible stocks could slide further. But stocks can always go down more. As the table above illustrates, there's much greater risk in not investing than trying to perfectly time the bottom.
3. The S&P 500 is undefeated
If there's one thing Warren Buffett likes, it's good, old-fashioned American businesses. He's made much of his fortune by investing heavily in companies like Coca Cola (KO 0.49%), GEICO, and See's Candy.
Image source: Getty Images.
He doubled down in his conviction in U.S. businesses in a 2020 letter to shareholders:
"Never bet against America. That is as true today as it was in 1789, during the Civil War, and in the depths of the Depression."
Look no further than a zoomed-out chart of the S&P 500 to see the truth in the Oracle of Omaha's statement.
Since its inception, the S&P 500 has returned nearly 24,000%. It did this despite some of the most turbulent periods in our country's history.
While the past is not a guarantee of the future, I'd much rather bet on the S&P 500 setting new all-time highs in the next several years than it never recovering.
Keep your eye on the ball
Don't let the "dark skies" of this current economic period scare you out of investing. If you are allocating money that you won't need in the next three to five years, the stock market is still the best wealth-building strategy at your disposal.
