Warren Buffet's investing advice in covid time is more important than ever
Covid has financially impacted almost everyone; both rich and poor. But it is the smartest investors who know how to turn something negative into a positive, and Warren Buffet is definitely one of them. Join me in reviewing and analyzing some of Warren Buffet’s advice on investing in Covid time.
See opportunity when others see the problem
The pandemic has financially affected Warren Buffet, his holding company (Berkshire Hathaway) as well many of his other businesses (for example Dairy Queen as the retail world took a hit because of the pandemic). But even with that, Berkshire has reported a significant increase in their net profit. But how is that possible?
This is mainly due to the strategy and way of thinking that has lead Warren Buffet to see opportunity when others see the problem (He also holds significant liquid capital that allows him to take advantage of opportunities, but I believe it is his human capital and way of thinking that is making the biggest difference)
This is a very important point because people usually tend to focus on negative things instead of paying attention to positive aspects and seek new opportunities. When a crisis happens, there are two things that someone smart will do:
First, Minimise any potential loss that could happen as a result of the crisis. Let’s just take few everyday life examples.
If your salary is impacted, you can think about negotiating your rent with the landlord or see if you can postpone paying any type of loan you might have. You will never know unless you ask.
Or If your small business is affected, do research on all the possible relief packages that might be available to you or see if you can refinance any of the current business loans you have. When a crisis happens, a lot of people just start panicking and that prevents them from taking any action. But there is always something we can do to do better damage control and lower the impact of a bad situation.
Second, Seek new investment opportunities. When the stock market is crashing, it might be the best time for a long-term investor to buy cheap stocks. The current situation in the world will not stay the same forever. There will be more people getting vaccinated, borders will open up and the economy will start to grow again. In this scenario, folks who had stayed calm and invested cheaply for the future will be the true winners.
Additionally, it is important to take advantage of the short-term effects of a crisis as well. Every crisis has inherent opportunities hidden in it. Since the Covid pandemic happened, we had a historically low-interest rate as a mechanism to stimulate economic growth. If you need a credit line to take advantage of some business opportunities, this might be the perfect time for it. Also, with the mortgage rates at a low/flat rate, homeowners who are looking to refinance their current mortgage or homebuyers with good credit scores who look for purchasing a house can benefit in the long run.
Finally, every crisis opens up new opportunities for people to test a new way of doing business. I have seen a lot of folks who got motivated to start their own business, even if they had not lost their job or had a salary decrease.
We all need a bit of healthy pressure to keep us on our toes and motivate us to try a bit harder.
You can always start a small business yourself and try to figure out a problem worth solving in the world or purchase a financially affected business for a reasonable price, use your expertise and skills to build it up again or extend it to new markets or streams of revenue. My advice for going this route is to approach it wisely, take small steps and truly evaluate a business opportunity before jumping into it.
Fix financial bad habits
I don’t know about you, but I learned the most important lessons in tough times. When a crisis happens, it is usually a good time to reflect and learn the flawed ways of our behavior, instead of just blaming the world. The Covid pandemic has hit many people financially without being their own fault, but it is certain financial behaviors that could make the situation even worst. And Warren Buffet had something to say about that in Berkshire’s annual meeting (which held virtually this year).
He believes that getting out of high-interest debt is ALWAYS a priority, before thinking about any investment or lifestyle and leisure expenses. It is impossible to have healthy financial well-being when you are carrying credit card interest rates at a 16% rate or higher. It is just crazy, But that is a sad truth for a lot of people, especially in Covid time when salaries might be affected or sudden expenses might come along.
They just treat these plastic cards in their pocket as a getaway solution to finance their lifestyle or temporarily solve their problems; or even worst, they seek payday loans with crazy interest rates. This MUST change, especially in the aftermath of Covid's situation where everybody’s finances are a bit uncertain.
The general suggestion for fixing financial bad habits is to write everything down; including all the credit card payments and associated interests, you are paying every month. It is only then when you realize how much money is getting out of your pocket.
What is known can be solved, what is unknown is always hurting you without even realising it.
This is going to be painful, but a necessary step.
After realizing the full extent of the issue and how much carrying such high-interest debt can impact your life in the long run, it is time to do some damage control on the issue. and you have several options.
The first thing is to get rid of the debt altogether. You need to do this before any other investment or other lifestyle expenses. What you are aiming for is a clean slate and a chance to start over.
The second step would be to look for alternative ways to lessen the effect of the high interest rates. I am not a financial advisor and we are not going to go into detail on how to do this, but there seem to be lots of options like personal loans with lower annual interest rates that can be used to pay off high-interest debts or consider a balance transfer credit to get a lower interest rate on your monthly payments. If you are living in the US, a great source to check alternative ways of consolidating debt is Credible. But make sure to talk to a trusted financial advisor before taking on a new loan.
And finally and after handling your high-interest debt, consider getting rid of this bad habit by any means that you can. It is completely fine to use credit cards if you can pay them off at the end of the month, but most people do not have the financial discipline to pull that off. In that case, call your bank and ask for a lower credit or even cancel your credit cards. The advisor at the bank might get surprised or even discourage you from doing so, but it is only you who know what is best for your financial well-being; resist their temptation.
This is not the first time the world is going through a tough time, but we always make a comeback and this time is no different. But every crisis gives us opportunities to start over, reflect back on mistakes and make better progress toward a better future. I hope you got some value from this piece :)
This article is for informational and entertainment purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.