The “Oracle of Omaha” is backing up the truck.
I’m talking about Warren Buffett, whom many consider the best investor of all time.
Buffett’s generated an annualized return of 20% for his shareholders since 1965.
That’s a LONG and legendarily consistent history of winning… and more than double the S&P 500’s annualized return over the same period.
Today, while many investors are panicking about plunging markets… Buffett sees big opportunity…
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Buffett’s investment firm, Berkshire Hathaway, revealed it plowed a net $41 billion into stocks in the first quarter of this year.
It’s Buffett’s biggest buying spree since the 2008 financial crisis.
And a major change of tune for Berkshire Hathaway—which has been sitting on a huge pile of uninvested cash for years.
Why? Buffett is a “value investor” who buys great businesses at good prices and aims to hold them forever. Simply put, stocks have been too expensive for too long… preventing Buffett from making many deals.
In fact, as recently as February 26, Buffett told his shareholders he was having trouble finding anything to buy at attractive prices.
That didn’t last long…
According to USA Today, “Berkshire spent more than $40 billion on stocks over the next three weeks, including one day in early March when he spent $4.6 billion.”
Buffett upped his stakes in oil plays Chevron and Occidental Petroleum… as well as Apple and video game maker Activision Blizzard.
You may know Buffett’s famous line… “Be fearful when others are greedy and greedy when others are fearful.”
He’s being greedy today. Because…
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Fear is running rampant...
The S&P 500 is teetering on the edge of a bear market, down 16% from its peak.
The tech-heavy Nasdaq is already in a bear market, down 27%.
But the highly unusual thing about this rough period is how it has spared almost no asset class.
Bonds are on track to have their worst annual performance since the 1940s. That’s a huge deal because bonds are supposed to blunt the pain in a time like this.
The most popular way to construct a portfolio is 60/40—60% stocks, 40% bonds. By holding 40% bonds, investors give away some upside in a bull market, in exchange for cushioning the blow of a bear market.
That has worked well for pretty much all of modern history. Not this time around.
On the other end of the risk spectrum are cryptos—which are known to be volatile. They haven’t fared any better. Bitcoin has been more than cut in half since its peak just a few months ago… and nearly all other cryptos have followed.
Gold, considered the ultimate “safe haven” asset, has been one of the better performing plays—and it’s merely flat over the past few months.
There’s no sugarcoating it: It’s rough out there.
If you’re nervous, you’re not alone.
Our Chief Analyst Stephen McBride has an important message for you:
Don’t panic.
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On Wednesday, Stephen rushed out a video update to his paid-up Disruption Investor members addressing the market volatility.
He was very clear that there probably will be more downside ahead.
And that’s OK. Stephen:
We've had many corrections and many bear markets in the past. And the thing that they all have in common is the market bounced back and eventually made new all-time highs.
When there’s pain in the market—it’s one of the best times to buy. If you just bought and held the S&P 500 over any 10-year period in history, there’s a 95% chance you’d turn a profit.
In Disruption Investor, Stephen recommends world-class disruptors to own for the long haul.
He says today’s volatility is presenting a great opportunity to make money over the next couple years.
One specific sector he likes is semiconductors, or computer chip stocks. In fact, he owns five top semi stocks in his Disruption Investor portfolio.
Stephen says semi sales hit all-time highs last year, and they're on track to surpass that this year. But in many cases semi stocks are trading at multi-year low valuations—despite incredible earnings.
Stephen again:
I know it's difficult to invest in markets like this.
But picture yourself a couple of months from now when markets could be in the green. And ask yourself—which businesses do you wish you had bought on the cheap? Which businesses do you wish you had bought trading at multi-year low valuations?
This exercise can help you identify the types of companies that you want to invest in and put money to work in right now. This really applies to businesses you want to own for two, three, five, or even 10 years.
This is the time to own high-quality businesses that you have high conviction in.
That’s what Stephen’s doing.
That’s what Warren Buffett’s doing—to the tune of $41 billion.
And that’s what you should consider doing as well with your long-term investments.
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If you’re a short-term trader, as opposed to a long-term investor, your approach should be different…
For traders, now’s the time to exercise patience.
That’s according to our Chief Trader Justin Spittler, who recently took some more risk off the table in his Disruption Trader advisory.
Here’s Justin:
It’s incredibly important to not rush into trades with the market being so volatile.
Instead, I’d wait for the next market leaders to present themselves. Right now, there simply isn’t true market leadership.
Even the strongest industries like oil and gas stocks remain vulnerable to a recession caused by higher interest rates.
So, I suggest waiting for more attractive setups to present themselves.
In short, it’s hard to make smart, high-probability trades with prices gyrating so much every day. If you choose to trade during these volatile market conditions, Justin has one recommendation above all else:
Bet smaller amounts than you normally would. By keeping your trades small, you accomplish two important things:
- You take less risk overall.
- You can give your trades a longer “leash” before cutting ones that don’t work out. This is necessary when prices are so volatile.
And remember: You’re not alone.
Fear is running high. But as Warren Buffett’s actions show… great opportunities are forming.
Here at RiskHedge, we’ve got your back.
If you missed our other recent essays on how to navigate today’s markets, you can find them below.
And stay tuned for Stephen’s new essay this week. He’ll lay out his roadmap for this volatile market…
If you have any questions, or certain topics you’d like our analysts to cover, you can write in to chrisreilly@riskhedge.com.
Chris Reilly
Executive Editor, RiskHedge
