Warren Buffett’s company Berkshire Hathaway reported holding a record $325 billion in cash in the third quarter. The company was also a net seller of stocks, a pattern that has been ongoing for several quarters. Buffett follows a value approach to investing, buying stocks only when he sees tremendous value.
The S&P 500 is up 26% this year and trading at record highs. Stocks are trading at high valuations. This doesn’t mean a crash will happen tomorrow, but it’s important to be prepared when it finally does.
Here are three things every investor should do:
1. Keep cash ready outside of your investments. Maintain an emergency fund for rainy days.
Have funds available for investment consistently. If the market looks expensive, be more selective about your investments and keep more funds ready for inevitable dips.
Berkshire Hathaway’s cash strategy
2. Avoid stocks whose valuations seem disconnected from their companies’ performance. One of Buffett’s most famous quotes is: “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” Berkshire Hathaway did take new positions in Domino’s Pizza and Pool Corporation in the third quarter.
3. Long-term investors know that dips, corrections, and crashes are part of being in the market. If you had sold at the beginning of the previous bear market, you would have missed out on the incredible gains since then.
The S&P 500 is up 67% since the beginning of the new bull market. Nvidia is up more than 1,000% since then, even though it lost half of its value in 2022. The key is to buy stocks you believe in and let time and the market work their magic.
Investing requires a mindset of patience and knowing that the market goes through cycles of ups and downs. Following these steps can help you navigate, prepare, and take advantage of the market’s highs and lows.
