This year has been a difficult time for many stock market investors.
Shares dived the first six months of the year, and few of them have escaped the plunge.
In fact, the major U.S. stock index S&P 500 has had its worst first six months in half a century, according to an article in the WSJ.
Since then some stocks have made a bit of a rebound, but the nervousness still lingers.
The question a lot of people are asking right now is:
What now? Is the market going to drop again? Or is it going to continue up?
The other question behind this question is: shall I buy or sell now?
Warren Buffett addressed this very clearly at his company Berkshire Hathaway’s annual meeting in May 2022:
“We don’t have the faintest idea what the market is going to do on Monday.”
Well, the major indices did drop by quite a lot that following Monday after the Berkshire Hathaway meeting.
Warren Buffett has been phenomenal at “timing” his investments. How is that possible? Especially when he says he doesn’t know how to time?
Well, he doesn’t time. He does something much simpler.
He invests without taking into account the macroeconomic trends and stock market forecasts. He focuses exclusively on the company in front of him.
I call it investing with blinders on. Like the horse on the road, you can’t let yourself get scared by a passing truck or noise from an airplane overhead.
You need to focus on the road and take one good step after another. That’s your job.
Here are three steps you can take to be a good investor in any market – bull or bear.
1. Focus on the Company and Its Products
First and foremost, you need to find good companies that you think will sell more in ten years.
As Warren Buffett says, you should only buy shares in the company if you’d be willing to buy the entire company and wait ten years without selling any stocks. This makes you think twice, doesn’t it.
Of course, that doesn’t mean you have to have billions in your trading account to buy the whole thing. It just means that you need to be ready to evaluate the company as a whole and equip yourself with patience.
If it’s a good company, that will show over time on the stock price – even though there may be short-term drops.
This, of course, depends on you not buying at inflated bubble prices. More about that in point 3.
2. Take the Company Through a Checklist
How do you know if the company has a better future in ten years?
You will need to take the company through a checklist.
I’ve made my own checklist, which you can download in summary form here.
The most important thing is that you assess whether you understand the product, whether you trust the management, whether the company’s finances are sound – growth, profits, sound cash flow and low debt – and whether they have competitive advantages that make customers stick to their products.
You can read more about how to take the company through such a checklist in my e-book Free Yourself here
3. Buy Shares When Cheap
Even the best company can prove to be a bad investment if you buy shares when the company is overvalued on the market.
For example, if you had bought Microsoft during the dotcom bubble in 2000, you would’ve had to wait 16 years before the stock was worth the same amount again.
How do you calculate what a company is worth?
There are several methods. My favorite is Warren Buffett’s owner earnings, which you can also learn more about in my e-book Free Yourself.
What I Do
By the way, in the picture above, I am on my way from Portugal to Denmark, where I opened my investment company, Grünbaum Value Invest, at the end of June.
Many observers have complimented me on “being good at timing the market”.
As you probably guessed by now, I’m not timing the market.
I’m only looking at whether there are opportunities in the market that I’m ready to act on.
And yes, great companies are now trading at reasonable stock prices. It’s a good time to get in, if you ask me. But you have to watch your steps carefully.
Learn how to identify great opportunities in my e-book Free Yourself right here.