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3 key teachings from Warren Buffett to navigate the current ASX market meltdown

The ongoing market turmoil will test even the steeliest investor as uncertainty over the health of the world’s economy and the impact of haphazard politics grow.

These fears have triggered a market correction as it knocked more than 10% off the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) this year and there’s an increasing risk that our market will fall further in early 2019.

The sell-off is alarming for longer-term investors as two competing ideas collide – decent economic data that points to more growth in the year ahead, and the sharp drop across multiple markets that are warning of a looming recession.

The volatility is proving to be an exciting time for thrill seekers, but for the rest of us, we are essentially playing a game of chicken with the market – and we are trying not to blink first.

In these uncertain times, there are three quotes from legendary investor Warren Buffett that are particularly helpful to investors navigating the treacherous waters of the ASX.

  • “You do things when the opportunities come along. I’ve had periods in my life when I’ve had a bundle of ideas come along, and I’ve had long dry spells. If I get an idea next week, I’ll do something. If not, I won’t do a damn thing” – This is relevant as many investors will feel pressured to capitulate and sell quality stocks in their portfolio. It’s ok to do nothing even though doing nothing is the hardest thing to do when markets are tumbling. This isn’t another GFC.
  • “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years” – Those who want to use the dip to buy quality stocks but are afraid of falling prices should keep this quote in mind. A rookie mistake (even some pros make it) is to believe you can always buy at the trough and sell at the peak. Don’t try to pick the bottom of the market.
  • “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price” – I particularly like this quote as it sums up why I wouldn’t buy distressed financials (at least not yet) like AMP Limited (ASX: AMP) and IOOF Holdings Limited (ASX: IOOF). It is also a reason why we shouldn’t try to pick the bottom when it comes to buying quality stocks. As long as the valuation makes sense, it is more than likely you will come away smiling over the longer-term.

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*Returns as of June 30th

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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