When markets are falling, investors look to Warren Buffett for guidance. After all, he is arguably the world's most successful investor, with Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) shares delivering a compound annual growth rate (CAGR) of nearly 20% since 1965.
The past few days have proven especially challenging. Equity markets have suffered some of the sharpest declines since the COVID era.
Do they have further to fall, or is this the bottom? That's the trillion-dollar question.
Investors are torn over whether to sell their positions to preserve capital or whether there is a rare buying opportunity.
Buffett's acts of omission
Warren Buffett has never claimed to be able to time the market.
At the Berkshire Hathaway's 2022 Annual General Meeting, he told shareholders:
I don't think we've [referring also to Charlie Munger] ever made a decision where either one of us has either said or been thinking: We should buy or sell based on what the market is going to do…Or, for that matter, what the economy is going to do.
Buffett, however, has spoken before about regret.
In Berkshire's annual shareholder letters, he has written about errors of commission and errors of omission. For Buffett, errors of commission included overpaying for purchases, while errors of omission included not buying shares in Alphabet or Amazon.
Errors of commission are easy to reflect on, as the error requires positive action. However, errors of omission can be just as damaging. Investors may forgo an investment opportunity because they are too focused on issues with stocks they already own.
Lessons for today's climate
In the trading week just past, many investors watched their investments drop sharply. Understandably, this may have led them to agonise over their holdings and debate whether to sell, hold, or buy more.
However, in doing this, they risk other opportunities slipping away from them. On Tuesday, I discussed why it is so important to keep a ready-made watchlist during market volatility. This prepares investors to buy their favourite investments on sale without hesitation.
While we don't know what is in store for equity markets next week, further volatility is not out of the question.
Prevent yourself from committing acts of omission by focusing on stocks you do own, as well as those you could own.
In hindsight, there are probably plenty of stocks you wish you'd bought during COVID. Imagine your future self in five years. What kind of companies would you like to see in your portfolio?
At the time of writing, Berkshire Hathaway shares are up around 17% for the year to date, while many major global indices just booked their worst quarter since 2022. Even at 94, Buffett still has it and is certainly still worth listening to.
