What Is Warren Buffett Doing at DOW 20k?

For the first time in Wall Street history, the Dow Jones Industrial average hit 20,000.

The S&P 500 and the Nasdaq also closed at all-time highs.

Now that these milestones have been reached, is it a good time to jump into a rising market? Or are we ready for a steep correction the other way?

In short, what would Warren Buffet do if he was you?

The Story

It’s hard to believe that as recently as 2009, the DOW was at 6,547.

That was in the darkest depths of the recession. Since then, the DOW has steadily climbed back — eventually hitting all-time highs.

And since the election, it’s surged even higher. It took just 64 days to close the gap between 19,000 and 20,000, making it the second-fastest “thousand-point sprint” ever.

The fastest was in 1999 — taking just 35 days to launch past 10,000 and hit 11,000.

Is it the Trump effect? The DOW has climbed 1,700 points since his election. And the DOW crossed 20k four days into his Presidency. So many think Trump’s plans to cut corporate taxes and slash regulations have given the markets a boost.

Others point out that positive corporate profit reports may be propelling the rise. Boeing’s positive profit report was released the morning the DOW hit 20k, for example.

Regardless, is it time to jump on the bandwagon, invest in the markets and ride the DOW higher? Not exactly…

Key Details

We just mentioned that the fastest 1,000-point DOW jump was in 1999, when the market hit 11,000.

Market confidence and enthusiasm were off the charts.

But it didn’t last long. The markets began a multi-year tumble, nearly losing 50%.

The same thing happened in 2007: the DOW seemed unstoppable, setting one high after the next.

A record-number of Americans jumped into stocks to take advantage — and then 2008 happened.

Now that we’ve hit DOW 20,000 — is this time different?

No one can say for sure. But most market experts are urging caution and warning against chasing performance.

Charles De Vaulx, the chief investment officer at International Value Advisers, was one of many cautious experts quoted by Bloomberg:

“I don’t think anyone would disagree that our new president and new administration are outsiders, they’re disruptors. By definition, they’re going to make changes, some significant changes. One would expect more volatility, both positive and negative, to come in the coming months. That’s a real conundrum…”

Others point out that once big, round milestones are hit, like DOW 20,000, markets tend to level off.

Brad McMillan, chief investment officer at Commonwealth Financial Network was quoted in USA Today:

“Typically, major milestones have acted as ceilings and for an index to break through convincingly takes a lot of energy.”

Where’s the Opportunity?

So what’s the best course of action for business owners at times like these?

For the answer, let’s take a cue from Warren Buffett.

Warren Buffett is one of the greatest stock market investors of all time. But it’d be a mistake to think of him only as an investor. Warren Buffett is a businessman.

At 18 years old, he invested in a pinball machine with a friend which they placed in a barber shop.

With the profits from this machine, they reinvested the money until they had pinball machines in 8 different barbershops.

Eventually the pair sold their pinball business, and Buffett used his share to reinvest in a few stocks and a new small business.

By reinvesting his profits into his businesses, Buffett was worth $174,000 by age 26. That’s more than $1.5 million in today’s dollars.

Even today Warren Buffett is a business owner. His company, Berkshire Hathaway, is famous for investing in a relatively small number of businesses they understand very well — as opposed to “investing” in diversified stocks.

So what’s Warren Buffett doing at Dow 20,000?

So far he is reinvesting profits back into his business — his business just happens to be investing in the stock market.

Buffett has bought $12 billion of stock in select businesses since the election, even though he was a Clinton supporter. That’s a rapid pace for Buffett — about half of what he invested in the previous 3 years combined.

But that’s hardly an endorsement of the stock market. Buffett is not afraid of large market corrections. Just a few years ago, Buffett famously said, “I like buying [the market] as it goes down, and the more it goes down, the more I like to buy.”

Instead, Buffett’s recent stock purchases are a reminder to reinvest in your strengths — which may or may not be the stock market.

What To Do Next

If your business is your strength, reinvesting in your business makes all the sense in the world.

But taking money out of your business to try and ride a wave you don’t fully understand doesn’t make sense at all.

With that in mind, here are 3 action steps to consider:

1. If you’re itching to invest, look for ways to reinvest in your business. Consider the guaranteed return that may come from investing in new equipment or software or increased productivity — versus putting your money in an uncertain market.
2. If you want to invest in the markets, do your homework. For some people, investing in the stock market is their strength. They spend years, or even decades, learning and studying how to invest wisely. But if it’s not your strength, there’s no reason to force it. That’s not investing — it’s gambling.
3. Discover your Investor DNA. To find investments outside of your business that DO match your strengths, download this free guide to determine which investments are right for you.

Build the life you love,

The Builders at Wealth Factory

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