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Buffett: Why Waiting For The Next Stock Market Crash Is A “Terrible Mistake”

Remember that little stock market wobble in January last year?

When the oil price was collapsing, the BHP Billiton Limited (ASX: BHP) share price hit an 11-year low, the Chinese stock market was crashing, and Wall Street was off to its worst ever start to a year!

Felt awful, at the time.

But in hindsight, it was a wonderful buying opportunity.

The Fortescue Metals Group Limited (ASX: FMG) share price has soared more than 300% in a little over a year. The South32 Ltd (ASX: S32) share price has gained 132% in the same period, and the Origin Energy Ltd (ASX: ORG) share price has jumped 80% higher.

Good old hindsight.

Never yet to pick a losing stock. Always knows exactly when to buy, and when to sell.

Bought mining stocks a year ago. Sold out of small caps and growth stocks the instant Trump was elected, switching into the blue chips, especially the banks. The National Australia Bank Ltd (ASX: NAB) share price has jumped 20% higher since the US election.

For the rest of us mere mortals, we’re left to fend for ourselves.

And that’s where things start unravelling.

We chase the latest trend — and today that’s the blue chips, particularly the banks and miners. My bet is investors buying bank stocks today will ultimately be disappointed.

We give up on those stocks who have recently under-performed, and today that’s small-cap growth stocks.

Heck, even when one of them upgrades its guidance — as was the case with Webjet Limited (ASX: WEB) — we still sell them off. The Webjet share price has fallen almost 6% since initially jumping higher post-results. My bet is growth stocks will again have their day in the sun, possibly sooner rather than later.

We worry about a coming stock market crash.

We worry more when Dr Doom, aka Marc Faber, says on CNBC

“Very simply, the market starts to go down. As it goes down, it will start triggering selling, and then it will be like an avalanche.”

Never mind that Faber has been categorically wrong with just about every one of his armageddon prognostications.

We worry even more because Trump is in office, and the man is totally unpredictable, not to mention a liar and exaggerator.

And then there’s the massive US stock market rally, with up until overnight, the Dow gaining for 12 days in a row.

The last time it did that was in 1987, the same year the Dow crashed 23% in one fateful October day.

Thank goodness for the voice of reason that is Warren Buffett, the man widely acknowledged as the world’s greatest stock market investor.

Speaking yesterday on CNBC, Buffett said waiting for the next stock market crash is a “terrible mistake.”

I’ve read every single one of Warren Buffett’s letters to Berkshire Hathaway shareholders, dating back to 1977. I’ve read umpteen books about the man, watched many interviews.

Yet, in his 86 years, and of all the words Buffett has written and spoken, I’ve seen few words of investing advice that can beat what he said in that CNBC interview this week…

“You want to spread the risk as far as the specific companies you’re in by owning a diversified group, and you diversify over time by buying this month, next month, the year after, the year after, the year after. But you are making a terrible mistake if you stay out of a game that you think is going to be very good over time because you think you can pick a better time to enter it.”

The game is the stock market. It has been, and will continue to be, a wonderful wealth creator, over time.

And as for whether the stock market is overvalued now, Buffett said in the same CNBC interview…

“We are not in a bubble territory or anything of the sort. Now, if interest rates were 7 or 8 percent then these prices would look exceptionally high. But measured against interest rates, stocks actually are on the cheap side compared to historic valuations.”

The good news for potential buyers of shares is that interest rates here in Australia look set to stay at low levels for what looks like years to come. Maybe not as low as 1.5 percent, but I struggle to see how they can get much above 3 or 4 percent without crashing the property market.

The house price bubble in Sydney and Melbourne effectively puts a cap on interest rates, and given the size of the property bubble, it’s a cap that will likely last for many years, even decades to come.

All of which, by comparison, makes dividend paying stocks — especially those trading on dividend yields of 4 percent or higher — look very attractive.

— Stocks like toll road operator Transurban Group (ASX: TCL). At a share price of $11.10, the shares trade on a forecast dividend yield of 4.6 percent.

— Stocks like mobile phone retailer Vita Group Limited (ASX: VTG). It just hiked its interim dividend by a whopping 60 percent. At a share price of $3.28, Vita Group trades on a forecast fully franked dividend yield of around 4.6 percent.

I’m not suggesting you go “all in” on dividend stocks right now.

What I am saying is you could take a leaf out of Warren Buffett’s book, buying into a diversified group of dividend stocks over time.

The two stocks above might be good starting points.

A third might be the “fortress” stock Andrew Page — our resident dividend expert — recently named as his top ASX dividend stock to buy now.

Unlike the big banks and Telstra Corporation Ltd (ASX: TLS) — who are struggling to meaningfully increase their dividends — this “fortress” stock just hiked its final dividend by a whopping 23 percent, such that it is now yielding more than 5 percent.

Growth plus yield. For me, it’s stock market investing nirvana.

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Of the companies mentioned above, Bruce Jackson has an interest in BHP, Webjet, Berkshire Hathaway, Transurban, Vita Group and Telstra.

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