Dow Average Drops, 1.7 Trillion Yen Losses of Five Billionaires including Buffett and Gates
CNBC news revealed that the losses suffered by top five billionaires in the Forbes World’s Billionaires list totaled $15.2 billion (approx. 1.7 trillion yen) due to the plunge of Dow Jones industrial 30-stock average on February 5, 2018.
$5.1 billion of Warren Buffett, $3.6 billion of Mark Zuckerberg, $3.3 billion of Jeff Bezos, $2.2 billion of Bill Gates, and $1.2 billion of Amancio Ortega, that is, their large assets were gone in a second.
However, professional investors advised people to stay calm even when the market is in confusion, and they should not pay attention to what was happening in the market.
Dow Recorded Biggest Plunge in History for One-Day Drop
Today, the Dow Jones industrial average tumbled to almost 1,600 at its lowest point – its biggest intraday point decline in history. The causes for the plunge have not been identified yet, but the market was extraordinarily flooded with selling orders, lasting over 15 minutes from 3.00 p.m. New York time, Many people felt “some kind of mechanical failure”. (a Bloomberg article dated on February 5, 2018)
There are, however, too many unstable factors to identify a mechanical failure. As Patrick Schowitz, a global strategist in the Multi-Asset Solutions at J.P. Morgan Asset Management, noted, the truth would be that bond yields rose significantly, causing imbalance in the end. Stock valuation was close to the level for the Internet bubble, hence the Dow average had already plunged 666 points on February 2.
Regardless of a mechanical failure, it would be natural to think “the market is now in operation”.
Are Billionaires’ Losses Smaller Than Donations to Charities?
Needless to say that the market was in confusion and billionaires in the world are just the same as those who suffered losses due to the plunge. Buffett, Zuckerberg, Bezos, Gates, and Ortega lost $15.2 billion in total, and besides, Larry Page and Sergey Brin, both the co-founders of Google lost $3.3 billion respectively.
They say more than one billion dollars each were gone in just one day from the assets of 18 people ranked in the Bloomberg Billionaires Index, which ranks the richest people with over one billion dollars of assets.
The amount is mind-boggling for ordinary people, but it is unlikely that the losses are that big for the billionaires. Bill Gates’ net worth is $119.8 billion, Buffett’s $86.6 billion, and Zuckerberg’s $74.7 billion (the Forbes list on February 7, 2018), all owning assets tens of times of their losses.
Furthermore, $14.7 billion were raised by the 50 biggest charitable donations of 2017 including Gates’ (according to the Chronicle of Philanthropy). Gates donated $4.8 billion to their foundation, which is over double of the losses for the plunge, and Buffett has also given five charitable donations equivalent to $3.17 billion of Berkshire Hathaway Class B shares.
Buffett Says Not to Watch the Market Closely
In an interview with CNBC in 2016, where Buffett was asked for some advice for investors, he said, “People should not watch the market closely.” Then, he added, “If they’re trying to buy and sell stocks when the stocks go up and down, they won’t have very good results.” He advised, “The money is made in investments by owning stocks of good companies for long periods of time like 10, 20, and 30 years from now.” Buying and owning is the smartest way to invest – an the advice given by Buffett who emphasizes long-term investments.
Nick Holeman, CFP at Betterment, known for a robo-advisor, agrees on what many analysts say – a temporary stock decline happens only due to market operations. He said optimistically, “If people are doing proper investments with a set goal, they won’t have to worry about the portfolio.”
When price fluctuations are volatile, the portfolio is easily unbalanced, and risks becoming high or low. That means people should wait calmly until a storm is over. As Holeman proposes, “Forget about what’s happening in the market while watching a Super Bowl game with ice cream. Well, we cannot stay that calm, but we should probably avoid worrying too much, like rushing to sell stocks.
Does a Price Adjustment Come Annually?
What Buffett is particularly good at is with a technique in buying stocks when the prices go down. Meanwhile, Joe Quinlan, a chief market strategist at U.S. Trust, addresses a warning to “be careful about what stocks you are going to buy”. It is important to select “stocks which prices will go up in long periods of time” as Buffett mentioned, and to not buy any stocks when the prices are low.
Alan Skrainka, a CIO at Cornerstone Wealth Management, stated that a price adjustment had happened 125 times in the U.S. stock market since 1900. In other words, stock prices usually plunge once a year. If you think plunged stock prices will go up again, you would find a great deal of sense in what those well-known investors and experts have stated.