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Warren Buffett's Most Important Advice in Today's Market

By Dan Caplinger - Feb 16, 2014 at 10:45AM

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Make sure you heed Buffett's advice, or you might find yourself in a compromising situation.

Investors around the world admire Warren Buffett and the impressive returns he's brought to Berkshire Hathaway shareholders. But in today's market, there's one piece of Buffett wisdom that's most important to remember.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, points to Buffett's statement that "you only find out who is swimming naked when the tide goes out." Dan notes that stocks have made a huge bull-market run over the past five years, making it easy for anyone to make money in the market. But what distinguishes the best stocks from the rest only becomes clear when markets go flat or pull back. Dan takes closer looks at Rite Aid (RAD -10.15%), Fannie Mae (FNMA -3.23%), and Freddie Mac (FMCC -3.67%), pointing out the dangers involved as well as the possible returns. Yet he also points out that even stocks that have clear potential for huge growth, such as Tesla Motors (TSLA -2.05%) and Micron Technologies (MU -3.92%), have to justify their share-price gains with fundamental growth. Dan concludes that you need to preserve wealth as well as finding ways to make it grow, and the right balance will keep you on track to meet your financial goals.

Dan Caplinger owns shares of Berkshire Hathaway. The Motley Fool recommends and owns shares of Tesla Motors and Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Rite Aid Corporation Stock Quote
Rite Aid Corporation
RAD
$7.70 (-10.15%) $0.87
Micron Technology, Inc. Stock Quote
Micron Technology, Inc.
MU
$60.51 (-3.92%) $-2.47
Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$890.00 (-2.05%) $-18.61
Federal National Mortgage Association Stock Quote
Federal National Mortgage Association
FNMA
$0.60 (-3.23%) $0.02
Federal Home Loan Mortgage Corporation Stock Quote
Federal Home Loan Mortgage Corporation
FMCC
$0.58 (-3.67%) $0.02

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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