Warren Buffet's famous quote matters now more than ever

“It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

This famous quote by Warren Buffet matters now more than ever with many wonderful company selling at fair price because of the current bear market.

Valuation compression of many great companies

2022 is the year of valuation compression of the whole market 

At the start of 2022 P/E of S&P 500 - 21.3

At the end of 2022 P/E of S&P 500 - 17.4

We can see a drop of 18% in P/E multiples even though earnings drop by only around 2%

Many companies have their P/E multiples fallen much more although they are still able to show earnings growth.

Understand your investment time horizon

Many people have shortlisted great company they want to purchase but are scared out of the market because of current high interest rate environment and recession talk which they fear might cause stock price to drop even more. 

This is where we can learn from Peter Lynch, another great value investor. He famously said that no one can predict accurately the short term movement of the market, giving an example not even the FED chairman can predict where interest rate would go in the short term. 

If our time horizon is of at least 5 to 10 years, the price of the stock will eventually catch up with the earnings so it is better to focus on the company you invested in and how they are performing with each earnings report. 

Thoughts 

I'm leaning towards the side of Warren Buffet in the current environment, I am sure many have already identified wonderful companies but are hesitant to invest in the current environment. 

My strategy would be to slowly deploy my cash throughout this year and especially on market red days to these wonderful companies and enjoy the the fruits of your investment once the market starts to turn around. 

$Tesla Motors(TSLA)$ $Alphabet(GOOG)$ $Microsoft(MSFT)$ 

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