The decision to buy or sell stocks is often difficult. There is always reason to be optimistic, since stock market history shows that highs generally increase over time. However, there are always risks for stocks, sectors and economies.
Warren Buffett does not seem to have a problem with this situation. He seems to buy stocks and not worry too much about the right time to bet on profits or losses. Their focus on value, instead of constant attempts to predict stock price fluctuations, could be the right way to ignore market noise and get impressive returns in the long run.
Evaluating whether the stock market is going to rise or fall is a complex and difficult task. For example, it is currently unclear how the global economy will develop in the future. Talks between the US and China may lead to the end of protectionist policies, which have become a hallmark of Donald Trump's presidency. Similarly, the two sides can not agree on a variety of issues, which can lead to new uncertainties for the global economy and global stock markets.
The situation is similar for a variety of other risks faced by investors. China's slowdown may accelerate, while Brexit may slow the European economy in the medium term. Likewise, these two risks may be less significant than investors currently expect. Therefore, the rise in stock prices may be imminent.
The difficulty of predicting whether stock markets are going to rise or fall may prompt investors to follow the decisions of others. This focus on many rumors may lead them not to make clear decisions, but often change their minds depending on stock price performance.
Warren Buffett, on the other hand, simply focuses on the value of a business, with a decision that depends on getting high quality stocks at reasonable prices. If the opportunity arises, he will buy such stocks with determination and maintain them in the long run. There is a risk of a slowdown in stock markets and paper losses. But as long as you're satisfied with the price paid compared to the intrinsic value of the stock, market fluctuations make little difference.
If there are no ways to buy stocks for less than their intrinsic value, Buffett simply holds money and waits until the time comes. This may take many years, but history shows that these possibilities appear sooner or later.
By focusing on value, Buffett can bypass market noise and not have to worry about how a variety of risks are developing for investors. This can help improve long-term returns, while accompanying short-term stock market trends to find undervalued stocks.
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This article was written by Peter Stephens in English and published on 13.01.2018 on Fool.co.uk. It has been translated so our German readers can participate in the discussion.
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