Buffett Said, You've Got To Be Prepared To Have A Stock Go Down 50% Or More. Will These Current Losers Be Long-Term Winners?

With a net worth of over $140 billion, Warren Buffett is one of the most popular investment gurus, as his simple yet effective investment strategies are followed by millions worldwide. He has long advocated the "buy and hold strategy." 

In fact, he has held certain stocks in his portfolio, namely The Coca-Cola Company KO and American Express Company AXP, for over two decades, having made the initial investment in the 1990s. 

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While the markets have rejoiced in the Federal Reserve's decision to slash rates by 50 basis points, broader macroeconomic concerns are expected to persist soon. 

In a shocking turn, the benchmark S&P 500 index fell by 0.29% intraday after the central bank's announcement, while the tech-focused Nasdaq composite Index declined by 0.31%. 

“It's important to note that stocks are not rocketing ahead (at least not yet) after getting what they wanted," said Steve Sosnick, chief market strategist at Interactive Brokers. 

Buffett's Sage Advice 

Warren Buffett has always condoned holding stocks over the long run, especially during murky market conditions. The current market fluctuations are a stark reminder of uncertainty in the investing world. 

“It's amazing to me how even when markets get what they seemingly want, they immediately want more,” Sosnick commented after the markets dipped following the Fed's rate cut announcement. 

One of Buffett's most iconic lessons is to be ready for a stock to drop by 50% or more, irrespective of the market conditions. 

"You shouldn't buy stocks unless you expect to hold them for a very extended period and you are prepared financially and psychologically to hold them," Buffett said during Berkshire Hathaway's 2020 annual meeting. "You've got to be prepared when you buy a stock to have it go down 50% or more and be comfortable with it, as long as you're comfortable with the holding."

Nike 

As one of the world's most recognized brands, Nike, Inc.'s NKE decline over the past year has raised eyebrows. Shares of NKE are down over 25% so far this year as a slowdown in consumer spending hit the apparel industry hard. The company forecasts its sales for the last quarter to decline by 10% due to slowing demand in China, uneven consumer trends and increased macro uncertainty. 

However, Nike's management is optimistic about its prospects. 

"A comeback at this scale takes time," said Matthew Friend, CFO of Nike, during an earnings call. "Although the next few quarters will be challenging, we are confident that we are repositioning Nike to be more competitive with a more balanced portfolio to drive sustainable, profitable, long-term growth."

Furthermore, shares of NKE have risen by over 3.5% over the past five days following the rate cut. As consumer spending rebounds, Nike's sales are expected to uptick. 

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United Parcel Service

United Parcel Service, Inc. UPS, a global logistics and package delivery leader, has faced tough times recently. The company’s recent increase in labor costs following signing a new labor deal with significant pay hikes has directly impacted its operating margins. This, coupled with declining volume momentum, has caused UPS stock to decline by over 15% year-to-date. 

"Product mix is expected to continue to pressure revenue per piece, however through expense management and slowing labor inflation, we expect to grow third-quarter operating profit by double digits and exit the year with a U.S. operating margin of 10%," said Brian Dykes, CFO of United Parcel Service.

Despite the challenging market conditions, United Parcel Service has been taking active steps to restructure its business. The company is on track to sell coyote Logistics, its trucking business segment, which is poised to free up approximately $500 million in cash reserves. 

Furthermore, UPS expects to complete the acquisition of Estafeta, a Mexican express delivery company, by the end of this year. 

Interest Rates Are Falling, But These Yields Aren't Going Anywhere

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Arrived Homes, the Jeff Bezos-backed investment platform, offers a Private Credit Fund. This fund provides access to a pool of short-term loans backed by residential real estate with a target of 7% to 9% net annual yield paid to investors monthly. The best part? Unlike other private credit funds, this one has a minimum investment of only $100. 

Don't miss out on this opportunity to take advantage of high-yield investments while rates are high. Check out Benzinga's favorite high-yield offerings.