Below is a three-question quiz that Warren Buffett, the multi-billionaire investor, gave Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) shareholders in his 1997 annual shareholder letter.
He wanted investors to discover how they should think of a falling market.
Currently, there is speculation in the media about whether we’ll have a market correction or not. This quiz from the “Oracle of Omaha” can set us straight on market fears. After the questions, I have two stocks that may be down but definitely are not out when it comes to paying good dividends. Here we go!
If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef?
If you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices?
And the final-exam question:
If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period?
Not incredibly difficult. Actually, the first and second are pretty obvious. Now, here is the answer for the third from the master investor himself –
“Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.”
If you are currently building up a portfolio for your long-term wealth and retirement, then you are more in your “accumulation” phase. You should want to buy your favourite stocks as cheaply as possible.
Are you worried about a market correction coming? Then hope that it drops everything by 20% instead of just 10%! Then wade in for the bargains. The right perspective for investing is sometimes the exact opposite of what everyone else may be doing. That’s what makes Foolish investors very Foolish… and richer.
Macquarie Group Ltd (ASX: MQG)
The investment bank’s recent full year earnings per share are up over 50% with the recovery of international financial markets and increased corporate activities. However, since breaking the $60 mark back in early May, the stock is down about 5.8% to $56.51.
It may be taking “a breather” after a strong run-up since mid-2012, but that could be before it sets out on the next leg up. If a correction comes and knocks off 10% or more, that will be a good discount. Its dividend yield is a very generous 4.9% partially franked. That may be higher than what its own customers get for term deposit interest, so you have to love that.
Monadelphous Group Limited (ASX: MND)
The engineering and construction company may be off the radar of many investors as the mining services industry is going through a downturn after the mining pullback. The stock is down about 18% in the past three months. It may see more earnings decreases before everything has worked its way out, yet probably the worst is over. It may be time to start stalking this company and look for signs of improvement.
It is offering a whopping 8.3% yield fully franked. This may reflect that earnings could dip some more, so be forewarned and fully informed by doing your homework.