Missed the market rally? Learn from the Warren Buffett playbook

Warren Buffett was famous for saying that he does not invest in companies he cannot understand. (Bloomberg)
Warren Buffett was famous for saying that he does not invest in companies he cannot understand. (Bloomberg)


  • At the risk of oversimplifying, Buffett bought into a high-quality company, Apple, for cheap, once again waiting for the right opportunity to make a big bet

So, you missed the bull market? How hard are you kicking yourself for this so-called fault of yours?

Well, if you stick with me till the end today, you will perhaps feel better about yourself. And, maybe also figure out a way to get back in.

(Of course), let’s start with Warren Buffett. While we know him for being one of the most successful investors of all time, it is important to know one other fact. Buffett also missed one of the biggest wealth creating megatrends, ever. I am referring to technology stocks.

Buffett was famous for saying that he does not invest in companies he cannot understand. That lack of understanding may have cost him tens of billions of dollars, if not more. And yet, he became rich. Really rich.

But here’s the thing, Buffett ultimately did get into technology, in a massive way. And perhaps, on terms he approves of.

Yes, I am referring to the massive investment Buffett made in Apple (a tech company) in 2016. Over time, he bet a huge chunk of Berkshire’s cash on this one single stock.

Now, why did Buffett buy the stock?

Well, for starters, let’s get one fact out of the way. Buffett did not understand technology even when he invested in it. But what changed? Buffett understood that Apple’s consumers would keep buying products Apple created. And they were willing to pay a lot of money for the product out of their sense of loyalty.

Also read | Retail buying on 4 June pushes F25 buys to levels seen in whole of F24

Let’s come to the second reason. Buffett bought into Apple when it was trading at about 10 times earnings (P/E of 10). Unbelievable, right? Today, of course, Apple trades at a P/E of about 33x, based on past earnings.

At the risk of oversimplifying, Buffett bought into a high-quality company for cheap. He had once again waited for the right opportunity to make a big bet.

And in case you are wondering, it’s estimated that in these last eight years, his investment is up 5x to 6x (estimates vary). Yes, wow!

So, the person who we all admire missed one of the biggest wealth-generating opportunities of all times. Until he did not. He figured out a way to get in.

Now, in this story, replace Buffett with yourself, and tech stocks, with the Indian stock market. And 2016 (when Buffett bought into Apple) with 2024.

You see where I am going with this. The fact that the Indian stock markets have run up does not mean you have missed the opportunity forever. It just means you have to wait a while longer to get in.

Also read | Retail investors and the fixation with equity MFs

Now, there are two ways to deal with this.

What I see people around me doing is the easy solution: buy into the high-momentum stocks hoping the momentum continues. This will probably work for you till it doesn’t (it almost never does). Others are more adventurous. They have jumped into options trading and the like. There’s enough history out there to show these things do not work out for most people.

The other solution, which we will call the Buffett solution is this: don’t regret that you missed the rally i.e. no FOMO at all. Instead, keep building cash reserves. And at the same time keep identifying high quality companies you would like to own, and at what price (think Buffett’s Apple purchase at 10 p/e, and aim for very attractive valuations, which leave headroom to make a lot of money over time). That’s it. The rest of it is a waiting game.

Now, the risk you run is that the stocks you like will never correct. That’s possible. But then what are the chances? If you have kept track, you know that crashes, or sharp corrections, are quite common.

Read more | Stock tips abound on Telegram, Insta. But do all adhere to Sebi’s rules?

If the Buffett approach is too much of a test of temperament for you, then, best to go with an extremely disciplined fund management team. If you select well, they will play the waiting game on your behalf.

Whether you do it on your own, or through a disciplined fund management team, you may yet tap into this bull market. And when you look back a few years from now, you will realize, that you did not miss all of it. Perhaps, you even made your fair share of the profit. Like Buffett did with tech stocks and Apple.

Rahul Goel is the former CEO of Equitymaster. You can tweet him @rahulgoel477.

You should always consult your personal investment advisor/wealth manager before making any decisions.

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.