Why Warren Buffett Doesn’t Predict the Stock Market — And What He Does Instead

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If you are interested in stock investing, you might feel you need a certain level of skill, knowledge, and maybe even some luck, to predict what the market will do and pick the right stocks. However, billionaire investor Warren Buffett doesn’t agree. In spite of his nickname, “The Oracle of Omaha,” which would imply predictions and forecasting, Buffett doesn’t try to time the market or predict the economic future.

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“I make no attempt to forecast the general market — my efforts are devoted to finding undervalued securities,” the 93-year-old billionaire has frequently said.

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Timing the Market Isn’t in Buffett’s Interest

In a recent interview on CNBC’s “Squawk Box,” he told Becky Quick: “I’ve been in business, running Berkshire for 58 years, and I’ve never opined an economic forecast of any use to the company. If I depended on economic forecasts, I don’t think we’d make any money.”

Instead, Buffett focuses on a practice called “value investing,” where he seeks out companies with solid fundamentals and strong leadership that are currently selling for what some may perceive to be a bargain price.

As Buffett has often said, “Price is what you pay. Value is what you get.”

Additionally, Buffett selects companies that he understands — and, often, loves — and holds on to those stocks long-term. Buffett’s investment in Coca-Cola, a soft drink he enjoys daily, stands as an example of Buffett investing in brands he believes in. “Never invest in a business you cannot understand,” the investor has frequently said.

Over the years, Coca-Cola consistently outpaced the S&P 500, delivering an annualized return of 10% between 1988 and 2020, not counting dividends, compared to the S&P’s 7.8%, according to Picture Perfect Portfolios.

The brand earned Berkshire Hathaway more than $19 billion over the years, contributing significantly the investment firm’s growth.

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Whatever You Do As an Investor, Keep Emotions Away From Your Portfolio

While value investing can be a solid strategy, not every financial advisor or investor agrees with Buffett’s philosophy – especially in today’s economic climate.

As Jim Osman, a Forbes contributor, wrote in December 2023: “Traditional value investing, as we know it, has run its course.”

He pointed out that Berkshire Hathaway showed returns of just 16% in 2023, compared to a 26% annual growth for the S&P 500. In the past five years, Osman wrote, the firm underperformed the S&P, with a return of 13.4% compared to 16.4%.

Whatever investment strategy you choose, it’s important to keep emotion out of the equation. “Understanding your own reactions to market fluctuations and extreme conditions is crucial,” Osman wrote.

Similarly, Buffett has said, “Be fearful when others are greedy, and be greedy when others are fearful.”

This adage, essentially, indicates that if you’ve studied a company’s fundamentals, evaluated the information, and see something in a company that others don’t, it might be time to act on an investment, whether that means buying or selling.

Osman wrote about what he called the “analytical edge,” which he described as “viewing the same public information as everyone else but through a different lens.”

Whatever investment strategy you embrace, understanding the companies that you intend to invest in can make all the difference.

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This article originally appeared on GOBankingRates.com: Why Warren Buffett Doesn’t Predict the Stock Market — And What He Does Instead