Warren Buffett’s style of investing when the market is expensive

Wondering if the stock market is too high for you to invest in? Take a tip from Warren Buffett in these times of stock market highs. Buffett is considered one of the best investors of all times and learning about his investing style can be beneficial to even the most novice investors.

What does Mr. Buffett do when the market is high?

1) Focuses on great businesses – He continues to focus on great businesses that are priced right. Mr. Buffett is quoted as saying, “It is far better to buy a wonderful business at a fair price than a fair business at a wonderful price.” His strategy here is to buy a great business at a good price. In other words, if it is a great business, it should do well and an investor will reap the benefits of investing in that type of business. This reminds me of times when I have purchased a great product even though I may have paid more than for a lessor product. I could have saved money by purchasing the lower priced product, but the outcome would have been less than desirable. In the end, I was glad I paid more because the product was worth the cost.

2) Invests for the long-term, not the short-term – I am always impressed by this strategy that Mr. Buffett uses. He doesn’t look to make quick, short-term gains, but realizes his investments are for long-term results.

As I have learned over the years, trying to time the ups and downs in the markets is extremely difficult. If we could exactly predict when the price would go up, then we could become wealthy. Since we cannot predict the market, make your investment strategy for the long-term and be prepared to ride out the bad times to reap the benefits of the good times.

3) Build positions in your portfolio over time – Use the dollar-cost averaging method to build your portfolio. Choose a stock that you want to invest in and then invest a specific dollar amount in that stock each month. For example, invest $100 every month in a stock of your choice. Each month you will purchase a different number of shares based on stock price at the time of purchase. Once you have initially purchased the stock, you are allowed to buy partial shares using dollar-cost average.

For illustration purposes, let’s suppose that you own shares of GE and have chosen dollar-cost averaging to continue purchasing the stock. Today shares of GE are trading for $31.29 and you have chosen to invest $100 using the dollar-cost averaging method with a $3 per transaction fee. You would have purchased approximately 3.1 shares of GE stock [($100 – $3)/$31.29]. Each month the amount of stock purchased will vary based on the price of the stock at the date of purchase.

Choosing the dollar-cost averaging approach will gradually build your holdings in the stock you choose to invest in. You will be investing at a slow and steady pace over the long haul which levels out the ups and downs of the market.

http://www.fool.com/investing/2016/09/04/3-pieces-of-warren-buffett-wisdom-for-an-expensive.aspx

 

 

 

 

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