What Billionaire Warren Buffett pays attention to when investing instead of ‘current events’

PUBLISHED: Mon, 13 May 2019 16:14:00 GMT

The stock market dropped sharply Monday, following comments from President Donald Trump that the U.S. will increase tariffs on goods imported from China. But although Berkshire Hathaway CEO Warren Buffett says that an escalation of the U.S.-China trade dispute  “would be bad for the whole world,” he doesn’t plan to change his investing practices based on the news. No matter what happens, “we will buy the same stocks today that we were buying last week,” he told CNBC’s Becky Quick during an interview Monday on “Squawk Box.”

“The cheaper they get, the more I buy,” Buffett said. “I’m not buying them because I think they’re going to go up the next day or the next week. We watch the prices of things we do more than current events.”

That’s because Buffett prefers to invest in companies that he believes will hold their value for the long term. “In the end, we aren’t buying them because of what’s going to happen next month or next quarter,” he explains. “We’re really buying them because we think they’ll be good business 10 years down.”

Regardless of the tariff situation, “if somebody came to us with a good business today, we’d buy it,” Buffett says.

Buffett decides a company is worth investing in because it will last, not because it’s doing well right now. He purchased See’s Candies with longtime business partner Charlie Munger in 1972 and spent more than $1 billion on Coca-Cola stock in 1988 — both of which turned out to be good bets and both of which he still owns today.

“Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value,” Buffett wrote in his 1996 letter to shareholders. “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”

Even when the legendary investor gets bad news about a company he’s invested in, he doesn’t immediately sell his stock. “The stock market is not there to instruct me, it’s there to serve me,” Buffett told Quick during an interview on “Squawk Box” in February.

The topic arose when Quick asked Buffett a viewer’s question about Kraft Heinz. A few days before their conversation, Kraft Heinz, one of Berkshire Hathaway’s largest holdings, had missed on its earnings expectations and disclosed that it had received a subpoena from the SEC. After that news broke, the company’s stock plunged 30% and Berkshire Hathaway’s stake dropped in value by more than $4 billion.

But although Buffett has admitted that “we overpaid for Kraft,” he told Quick he had no plans to sell his stake. His practice is to keep his focus on, and evaluate, the company overall. “If there’s bad news and the stock goes down, the question I have is: Is the long-term valuation changed?” he says.

It’s possible to recover from a setback. The key thing, according to Buffett in February, is “you gotta make sure that it’s still a fundamentally good business.”

As Buffett told Quick on Monday, “If you think about stocks as businesses that you own little pieces of, why in the world should you sell it based on headlines of any sort?”

“If you expect that business to be a good business over 10 years, its nonsense to get feeling good or bad about what stock prices do in a day,” he added.

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