Expecting a Market Downturn? Make Sure You’re Following the “Noah Rule”

Expecting a Market Downturn? Make Sure You’re Following the “Noah Rule”

In his letter to Berkshire Hathaway shareholders for fiscal year 2001, Warren Buffett made one of his now-famous pronouncements: “Predicting rain doesn’t count, building an ark does.”

Buffett admitted to forecasting some of the market turmoil during the year, which was exacerbated by 9/11, and yet he failed to convert thought into action. Thus, he violated what some investors now call “the Noah rule,” named for the ancient prophet who saved himself, his family and a few million animals by building a ship in anticipation of a great flood.

Predicting a major economic or financial event—whether that’s a recession, market downturn or even your own retirement—requires that you also take action. Otherwise your prediction was meaningless. This is why I’m always recommending that investors have a 10 percent weighting in gold, split evenly between physical bullion and gold mining equities, which have historically performed well in times of great volatility.

It’s also important to save and invest every single month, particularly in high-quality companies that are not only paying dividends but also growing those dividends.

This should be as automatic, consistent and pain free as brushing your teeth. After all, what prevents us from getting a mouth full of cavities is not the one or two visits to the dentist every year—it’s the everyday, “boring” act of brushing and flossing. Growing your wealth should be just as incremental and steady, and I’m proud to offer investors an automatic investment plan that uses the advantages of dollar-cost averaging—a strategy that lets you invest a fixed amount in a specific investment at regular intervals.