On Monday morning, Warren Buffett spent three hours on CNBC’s Squawk Box answering live questions.
After a long Buffett marathon, we usually try to figure out what investors need to do based on his words. This time it’s different, because we learned five important lessons on what investors should not do.
1. Do not let world events have an effect on your investment decisions.
Buffett mentioned that even if he was certain that a big war was unavoidable, “I will still be buying stock. You’re going to invest your money in something over time. The one thing you can be sure of is if we went into some very major war, the value of money would go down. … That’s happened in virtually every war that I’m aware of. … The last thing you want to do is hold money during a war. You might want to own a farm, you might want to own an apartment house, you might want to own securities. During World War II the stock market advanced. The stock market is going to advance over time.”
2. Do not feel unhappy when a stock goes down in value.
On a bad day when the stock markets were experiencing great worries over the Ukraine situation and whether or not it would lead to a war, Buffett mentioned, “When I got up this morning I actually looked at a stock on the computer, on the trades in London, that we’re buying and it’s down and I felt good. … We were buying it on Friday and it’s cheaper this morning and that’s good news.” Will he buy more? “Absolutely.”
3. Do not believe that you must be an expert in order to profit from owning stocks.
“The stock market just offers you so many opportunities, thousands and thousands of different businesses. You don’t have to be an expert on every one of them. You don’t need to be an expert on 10 percent of them even. You just have to have some conviction that either a given company, or a group of companies … are likely to make more money five or 10 or 20 years from now than they’re earning now. And that is not a difficult decision to come to.”
If you have no stock market expertise whatsoever, Buffett recommends that you get into a low-cost index fund that tracks the S&P 500. “Keeping costs to a minimum is enormously important in investing. … If you’re in effect paying out 1 or 2 percent annually of your portfolio, that’s a big, big tax that you don’t have to pay.”
4. Do not attempt to try and make a quick profit.
When asked if “activist investors” are actually acting in the best interest of the companies and their shareholders, Buffett said, “Generally speaking, they are interested in making a quick profit and there’s no law against making quick profits. But our whole attitude in our own business and what we like to see with the businesses we own stock in is we want to run them for the people who are going to stay in rather than the people who are going to get out. At any given time, you can make more money, usually, selling the company. … The answer isn’t to sell the company. The answer is to keep running the company well. … I could do certain things to jiggle up the price of Berkshire in the short run. It would not be good for the company over five or 10 years.”
5. Do not put your money into bitcoins as a long-term investment.
“It’s not a currency. It does not meet the test of a currency. I wouldn’t be surprised if it’s not around in 10 or 20 years. … It is not a durable means of exchange. It’s not a store of value. … It’s been a speculative—a very speculative—kind of Buck Rogers-type thing, and people buy and sell them because they hope they go up or down just like they did with tulip bulbs a long time ago.”