Investing in Coronavirus, Warren Buffett–Style
WHY YOU SHOULD CARE
Because it's possible not just to survive coronavirus panic, but to actually thrive.
By Nick Fouriezos
It was 1987, and Warren Buffett was worried about twin epidemics that often plagued the stock market: fear and greed. Amid these “super contagious” mindsets, Buffett’s operating philosophy was a basic one: “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful,” he wrote in his annual letter to Berkshire Hathaway investors.
Last fall, the world couldn’t understand why Buffett was sitting on $128 billion in cash, forgoing potential billions in stock market agains. But now he looks like a genius again, as that other contagion — coronavirus — has wiped off nearly all of the gains made in the stock market during the Trump administration.
The lesson? Whether it be chasing others face-first into the bull market or panic selling during the bear market we are facing for the first time since the Great Recession, it is generally a bad idea to follow the cultural zeitgeist. Here are a few ways you can be financially savvy, as others collectively lose their financial minds.
First: Do Not Pull Out of the Market
Watercooler chat — or, for many of us, the Slack channels — may have well-meaning coworkers trying to convince you to sell stocks and switch bonds pronto. Don’t. The losses you’ve sustained are sunk costs … but they also are only losses on paper until you actually sell. The market will eventually recover, and if you can wait out the storm — aka you are at least a few years from retirement — they will likely return to their old value. Selling now locks in your losses and is a classic example of buying high and selling low.
You may not have to even wait long: The duration of the longest epidemic-based decline was the HIV/AIDS epidemic in 1981, which dropped the MSCI World Equity Index benchmark down 17 points in five months. Within two years, the market was back up 36 percent. If the siren call is just too much, pull an Odysseus and strap yourself to the mast by refusing to log in to your investment account (even changing your password and promptly forgetting it, if you have to). Stay on course.
With the Federal Reserve Bank cutting interest rates down to nearly zero, you can capitalize on historically low rates from some lenders.
If You Have Cash, Consider Investing It
This is where being brave comes in. Fearful investors see the market crashing and abandon ship. But savvy investors see a giant neon sign: STOCKS FOR SALE. After all, when the market recovers, you will have bought at an extreme discount. So assuming you already have the recommended 6-12 month emergency fund in place, it’s time to go shopping (not physically: stay away from public gatherings and do your part in flattening the coronavirus curve, please).
One option: Instead of buying individual company stocks, invest in the entire stock market through index funds. The most popular one is Vanguard’s Total Stock Market Index Fund Admiral Class (VTSAX). If you really want to pick favorites, tech-focused ETFs — such as the Technology Select Sector SPDR Fund (XLK) — have been some of the biggest winners of the last decade. They are being sold on a discount because of the crisis, are potentially more suited to weather a work-from-home economy and may actually benefit long-term from a societal transition away from public spaces.
If you already have, or were saving up, a down payment, putting your money into a rental property or even a personal home may be a better decision than stocks right now. With the Federal Reserve Bank cutting interest rates down to nearly zero, you can capitalize on historically low rates from some lenders. And with the real estate market already cooling from coronavirus concerns, you may find less competition from other buyers. In fact, now is the perfect time to follow another Buffett rule: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
So find your wonderful property, crunch the numbers to see what price works for your financial goals and don’t be afraid to ask for significantly less than the asking price. Home sellers are fearful, just as much as stock sellers, and may be looking to get out of their place before panic sets in and takes down the housing market too. Not everybody wants to be a landlord, sure. But there are plenty of vacation rental and property management companies that will essentially run every day-to-day operation for you.
Monetize Your Living Space
If you still are nervous about being a landlord, find new ways to profit from your living space — whether it’s in your current location, or, if you followed our previous advice, in a newly purchased home.
There are countless options, from renting out your dusty garage corner for storage space on the Neighbor app to charging Lime scooters in your hallway overnight and renting out your extra room over AirBnB. With many people working from home, it’s easy to use the time previously spent commuting and do work online. Some great options include being paid to take surveys or trying out new apps or websites for companies, through websites like SwagBucks and UserTesting.com.
Invest in Yourself
Self-quarantine is a perfect time to assess your goals and lifestyle choices. Make lists, write journal entries, figure out what you want and who you want to be. And with your time at home, start building habits: From exercising daily to cooking more — both decisions that can also save you money in the long run — this may be the best investment of them all. If you do all these things, even holed up for weeks, you can rest easy knowing you are living (at least, financially) like the $73 billion Oracle of Omaha himself.