Patience, discipline, and a long-term perspective are fundamental to successful investing—a philosophy Warren Buffett has embodied throughout his five-decade tenure at Berkshire Hathaway.
His recent retirement highlights the enduring relevance of his principles, such as staying disciplined during volatile markets, which often present the best opportunities.
Despite recent market turbulence, valuations remain more attractive than earlier in the year, reinforcing the value of a steady, long-term approach amid uncertainty.
Here are some Buffett principles that can guide us through current market conditions.
Market volatility has improved valuations
“Whether we’re talking about stocks or socks, I like buying quality merchandise when it is marked down.” – Warren Buffett, 2018 Berkshire Hathaway annual letter
Warren Buffett’s investment philosophy emphasizes buying undervalued companies, and recent market shifts have brought valuations closer to historical norms, creating potential opportunities. Over long periods, valuation ratios are a key indicator of market appeal, while short-term movements are often driven by fleeting news and events. Evaluating valuations—rather than just stock prices—helps investors determine if they are getting good value in terms of earnings, dividends, and other metrics, which can influence long-term returns. While valuations shouldn’t dictate market timing, they play a critical role in shaping sound, expectation-driven investment strategies throughout market cycles.
Corporate earnings have grown steadily
“Focus on the future productivity of the asset you are considering. If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on.” – Warren Buffett, 2013 Berkshire Hathaway annual letter
Valuations have improved not only due to lower prices but also because of strong corporate earnings growth, with S&P 500 companies reporting a 12.8% increase—far exceeding earlier expectations. While sectors like Communication Services, Financials, Healthcare, and Technology are driving profit growth, Consumer sectors have shown weakness as inflation prompts more cautious spending. Earnings calls reveal that companies are cautiously responding to tariff uncertainty, continuing to invest in long-term initiatives—particularly in technology and AI infrastructure. Additionally, many companies are undergoing strategic transformations to adapt to evolving technologies and economic conditions, positioning themselves for future success.
Dividends continue to support portfolios
“It’s not good news when any company cuts its dividend dramatically” – Warren Buffett, 2023 Berkshire Hathaway annual meeting
Even though Berkshire Hathaway has rarely paid dividends, Buffett has benefited from the earnings and dividend-generating ability of his portfolio companies. While investors typically focus on stock prices, dividends have historically been a major contributor to long run returns.
Despite ongoing market uncertainty, dividends have continued their upward trajectory, adding to stock market total return for investors. The accompanying chart shows that many sectors have healthy dividend yields, many of which are still around their 10-year averages.
For investors who rely on their portfolios for income, dividends are an important source of yield. Dividends are also an important signal of the underlying financial health of corporations. This is because dividend payments are not just accounting figures, but require actual cash. The continued growth in dividends suggests confidence among corporate leaders despite near-term uncertainties.
The bottom line? As Warren Buffett’s career shows, the best way to navigate uncertainty is with a patient, long-term approach to investing. This remains relevant in today’s market environment, especially as investment fundamentals improve.
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The views expressed represent the opinions of Mendel Money Management as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.
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