A key principle of investing is that patience, discipline, and maintaining a long-term perspective are what drive financial success. Perhaps no investor has captured this wisdom as eloquently as Warren Buffett over his five-decade career as CEO of Berkshire Hathaway.
Buffett’s recent retirement announcement is an opportunity to revisit investment principles that are not only relevant in today’s market environment, but have also stood the test of time.
An often-used Buffett quote is to “be fearful when others are greedy, and greedy when others are fearful.” While steady markets are more comfortable, it’s during difficult periods that opportunities truly present themselves. April’s market volatility is a perfect example, spurred by tariffs, inflation, interest rates, and more.
Those investors who have been able to look past short-term news and market swings, and instead consider their overall portfolios, are likely to be better positioned for the future.
Even though the stock market has regained much of its year-to-date losses, valuations continue to be more attractive than at the start of the year. These are times when patient investors can potentially benefit from more attractive valuations and long run market trends. Taking a disciplined approach to volatility has historically rewarded those who, like Buffett himself, look past short-term market swings and maintain their investment objectives. 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
An important tenet of Buffett’s approach is investing in companies that are undervalued. While broad stock market valuations rose to nearly historic highs earlier this year, the recent pullback and steady earnings growth have brought valuations back to more attractive levels.
At just under 20x, the S&P 500’s price-to-earnings ratio is now in-line with its average over the past decade. This “valuation reset” is the result of short-term concerns about tariffs and economic uncertainty, but might also reflect opportunities.
This is because, over longer time horizons, valuation ratios serve as the best gauge of market attractiveness. While market moves that occur over days and months are often dominated by news headlines, company-specific events, and geopolitics, these concerns typically settle and fade over time. When looking out over years and decades, what matters more are the overall growth trends and whether investors paid a reasonable price when they made their original investment.
Valuations are one way to gauge whether investors are paying a reasonable price. Rather than focusing on stock prices alone, valuations tell us what you get for that price – in terms of earnings, book value, cash flow, dividends, and more. Purchasing assets when valuations are attractive typically improves the odds of stronger future returns, while investing when markets appear expensive often leads to more modest long-term results. For this reason, valuations have historically shown a strong correlation with long-term portfolio performance.
It’s important to recognize that valuations should not be viewed as market timing instruments for making all-or-nothing investment decisions. Rather, they are an important input into building appropriate portfolios. Understanding current valuation levels can help identify opportunities and set expectations in all phases of the market cycle.
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
In addition to more attractive prices, another important reason valuations have improved is the steady growth of corporate earnings. With more than three-quarters of S&P 500 companies having reported first-quarter results, earnings have grown an impressive 12.8%, according to FactSet. This significantly exceeds the 7.2% growth rate expected at the beginning of earnings season.
This positive surprise has been driven by several sectors, particularly Communication Services, Financials, Healthcare, and Information Technology, which continue to grow their profit margins.
In contrast, the Consumer Discretionary and Consumer Staples sectors have shown relative weakness, beating their sales targets at a lower rate. This aligns with survey data indicating consumers are becoming more cautious about spending as they prioritize necessities amid inflation concerns.
Beyond the numbers, earnings calls have provided valuable insights into how companies are navigating the current environment. Three key themes have emerged.
First, many companies have adopted a “wait-and-see” approach to the tariff situation. Given limited visibility, some have suspended guidance, while others have incorporated preliminary tariff estimates into their forecasts.
Second, despite near-term uncertainty, plans to make capital investments remain strong, particularly in technology sectors. Major technology companies have maintained or increased their capital expenditure plans for 2025, especially in areas related to artificial intelligence infrastructure. This suggests that management teams have continued confidence in long-term growth opportunities.
Third, companies across various sectors are undergoing transformations to adapt to technological advancements, changing consumer preferences, and economic shifts. These strategic adjustments, while sometimes challenging in the short term, position companies to better weather uncertainty and capitalize on emerging opportunities.
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. His mentor, Benjamin Graham, focused heavily on the importance of dividends as an indicator of corporate financial health in the book “The Intelligent Investor.” 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. Companies are typically reluctant to cut dividends except during periods of financial stress. 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.
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.
Concerns or questions about how your investment portfolio will hold up in the current market environment? Contact Financial Synergies today.
We are a boutique, financial advisory and total wealth management firm with over 35 years helping clients navigate turbulent markets. To learn more about our approach to investment management please reach out to us. One of our seasoned advisors would be happy to help you build a custom financial plan to help ensure you accomplish your financial goals and objectives. Schedule a conversation with us today.
More relevant articles by Financial Synergies:
Blog Disclosures
This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own financial advisors as to legal, business, tax, and other related matters concerning any investment.
The commentary in this “post” (including any related blogs, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Financial Synergies Wealth Advisors, Inc. employees providing such comments, and should not be regarded as the views of Financial Synergies Wealth Advisors, Inc. or its respective affiliates or as a description of advisory services provided by Financial Synergies Wealth Advisors, Inc. or performance returns of any Financial Synergies Wealth Advisors, Inc. client.
Any opinions expressed herein do not constitute or imply endorsement, sponsorship, or recommendation by Financial Synergies Wealth Advisors, Inc. or its employees. The views reflected in the commentary are subject to change at any time without notice.
Nothing on this website constitutes investment or financial planning advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. It also should not be construed as an offer soliciting the purchase or sale of any security mentioned. Nor should it be construed as an offer to provide investment advisory services by Financial Synergies Wealth Advisors, Inc.
Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Synergies Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
Any charts provided here or on any related Financial Synergies Wealth Advisors, Inc. personnel content outlets are for informational purposes only, and should also not be relied upon when making any investment decision. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Information in charts have been obtained from third-party sources and data, and may include those from portfolio securities of funds managed by Financial Synergies Wealth Advisors, Inc. While taken from sources believed to be reliable, Financial Synergies Wealth Advisors, Inc. has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. All content speaks only as of the date indicated.
Financial Synergies Wealth Advisors, Inc. is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Financial Synergies Wealth Advisors, Inc. and its representatives are properly licensed or exempt from licensure. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
See Full Disclosures Page Here
Lessons from Warren Buffett for Today’s Investors
A key principle of investing is that patience, discipline, and maintaining a long-term perspective are what drive financial success. Perhaps no investor has captured this wisdom as eloquently as Warren Buffett over his five-decade career as CEO of Berkshire Hathaway.
Buffett’s recent retirement announcement is an opportunity to revisit investment principles that are not only relevant in today’s market environment, but have also stood the test of time.
An often-used Buffett quote is to “be fearful when others are greedy, and greedy when others are fearful.” While steady markets are more comfortable, it’s during difficult periods that opportunities truly present themselves. April’s market volatility is a perfect example, spurred by tariffs, inflation, interest rates, and more.
Those investors who have been able to look past short-term news and market swings, and instead consider their overall portfolios, are likely to be better positioned for the future.
Even though the stock market has regained much of its year-to-date losses, valuations continue to be more attractive than at the start of the year. These are times when patient investors can potentially benefit from more attractive valuations and long run market trends. Taking a disciplined approach to volatility has historically rewarded those who, like Buffett himself, look past short-term market swings and maintain their investment objectives. 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
An important tenet of Buffett’s approach is investing in companies that are undervalued. While broad stock market valuations rose to nearly historic highs earlier this year, the recent pullback and steady earnings growth have brought valuations back to more attractive levels.
At just under 20x, the S&P 500’s price-to-earnings ratio is now in-line with its average over the past decade. This “valuation reset” is the result of short-term concerns about tariffs and economic uncertainty, but might also reflect opportunities.
This is because, over longer time horizons, valuation ratios serve as the best gauge of market attractiveness. While market moves that occur over days and months are often dominated by news headlines, company-specific events, and geopolitics, these concerns typically settle and fade over time. When looking out over years and decades, what matters more are the overall growth trends and whether investors paid a reasonable price when they made their original investment.
Valuations are one way to gauge whether investors are paying a reasonable price. Rather than focusing on stock prices alone, valuations tell us what you get for that price – in terms of earnings, book value, cash flow, dividends, and more. Purchasing assets when valuations are attractive typically improves the odds of stronger future returns, while investing when markets appear expensive often leads to more modest long-term results. For this reason, valuations have historically shown a strong correlation with long-term portfolio performance.
It’s important to recognize that valuations should not be viewed as market timing instruments for making all-or-nothing investment decisions. Rather, they are an important input into building appropriate portfolios. Understanding current valuation levels can help identify opportunities and set expectations in all phases of the market cycle.
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
In addition to more attractive prices, another important reason valuations have improved is the steady growth of corporate earnings. With more than three-quarters of S&P 500 companies having reported first-quarter results, earnings have grown an impressive 12.8%, according to FactSet. This significantly exceeds the 7.2% growth rate expected at the beginning of earnings season.
This positive surprise has been driven by several sectors, particularly Communication Services, Financials, Healthcare, and Information Technology, which continue to grow their profit margins.
In contrast, the Consumer Discretionary and Consumer Staples sectors have shown relative weakness, beating their sales targets at a lower rate. This aligns with survey data indicating consumers are becoming more cautious about spending as they prioritize necessities amid inflation concerns.
Beyond the numbers, earnings calls have provided valuable insights into how companies are navigating the current environment. Three key themes have emerged.
First, many companies have adopted a “wait-and-see” approach to the tariff situation. Given limited visibility, some have suspended guidance, while others have incorporated preliminary tariff estimates into their forecasts.
Second, despite near-term uncertainty, plans to make capital investments remain strong, particularly in technology sectors. Major technology companies have maintained or increased their capital expenditure plans for 2025, especially in areas related to artificial intelligence infrastructure. This suggests that management teams have continued confidence in long-term growth opportunities.
Third, companies across various sectors are undergoing transformations to adapt to technological advancements, changing consumer preferences, and economic shifts. These strategic adjustments, while sometimes challenging in the short term, position companies to better weather uncertainty and capitalize on emerging opportunities.
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. His mentor, Benjamin Graham, focused heavily on the importance of dividends as an indicator of corporate financial health in the book “The Intelligent Investor.” 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. Companies are typically reluctant to cut dividends except during periods of financial stress. 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.
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.
Concerns or questions about how your investment portfolio will hold up in the current market environment? Contact Financial Synergies today.
We are a boutique, financial advisory and total wealth management firm with over 35 years helping clients navigate turbulent markets. To learn more about our approach to investment management please reach out to us. One of our seasoned advisors would be happy to help you build a custom financial plan to help ensure you accomplish your financial goals and objectives. Schedule a conversation with us today.
More relevant articles by Financial Synergies:
Blog Disclosures
This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own financial advisors as to legal, business, tax, and other related matters concerning any investment.
The commentary in this “post” (including any related blogs, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Financial Synergies Wealth Advisors, Inc. employees providing such comments, and should not be regarded as the views of Financial Synergies Wealth Advisors, Inc. or its respective affiliates or as a description of advisory services provided by Financial Synergies Wealth Advisors, Inc. or performance returns of any Financial Synergies Wealth Advisors, Inc. client.
Any opinions expressed herein do not constitute or imply endorsement, sponsorship, or recommendation by Financial Synergies Wealth Advisors, Inc. or its employees. The views reflected in the commentary are subject to change at any time without notice.
Nothing on this website constitutes investment or financial planning advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. It also should not be construed as an offer soliciting the purchase or sale of any security mentioned. Nor should it be construed as an offer to provide investment advisory services by Financial Synergies Wealth Advisors, Inc.
Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Synergies Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
Any charts provided here or on any related Financial Synergies Wealth Advisors, Inc. personnel content outlets are for informational purposes only, and should also not be relied upon when making any investment decision. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Information in charts have been obtained from third-party sources and data, and may include those from portfolio securities of funds managed by Financial Synergies Wealth Advisors, Inc. While taken from sources believed to be reliable, Financial Synergies Wealth Advisors, Inc. has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. All content speaks only as of the date indicated.
Financial Synergies Wealth Advisors, Inc. is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Financial Synergies Wealth Advisors, Inc. and its representatives are properly licensed or exempt from licensure. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
See Full Disclosures Page Here
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