The first major stock market correction in over a year appears to be in the rear view mirror, but many investors are still nervous. Market commentators have decided to declare that “interest rates” were responsible for the initial drop in early February, and the President’s announcement on trade policy and tariffs was the reason for the second drop later in the month.
Legendary investor Warren Buffet, CEO of Berkshire Hathaway, released his annual letter to shareholders on Saturday. The annual letter from the “Oracle of Omaha” is widely read by financial advisors and individual investors alike. Investors have a very good reason to pay attention to Buffet’s comments. Buffet’s strategy of investing in individual stocks and paying fair prices for great companies has beaten the S&P500 index since 1964. This year’s letter has three lessons every investor should understand.
Volatility has returned to the stock market! Historically, the long, steady upward march we’ve seen over the past year and a half has been unusual. Even when the economy is good, it is normal for the market to have ups and downs. Occasional corrections are actually healthy for the market, even though when corrections happen they often feel scary.
In the world of investments, there are many highly educated people who spend their days studying every data point you can think of. They look at things like bond yields, stock correlations, sector performance and factor investing.