It’s been a rough week for UK shareholders, as panic swept the London market following the collapse of two mid-sized US banks. But while the FTSE 100 index dropped 5.3% in the week, the S&P 500 actually added 2.1%. With fear, uncertainty and doubt haunting financial markets, I wonder what Warren Buffett would make of this latest meltdown?
Buffett’s advice on market misery
Famed investor Warren Buffett is a mega-billionaire philanthropist. He has a personal fortune of $101.6bn built up through investing (and has also given away almost $50bn to good causes). So when the Oracle of Omaha speaks, markets listen.
Here’s what Uncle Warren has said during previous stock-market crashes:
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1. “Be fearful when others are greedy, and be greedy when others are fearful.”
During the depths of the global financial crisis of 2007-09, Buffett wrote these wise words in a New York Times article dated 16 October 2008.
In the same piece, Buffett explained that he was putting 100% of his personal wealth into US stocks. Five months later, the stock-market crash was over and share prices soared, making my hero even richer.
2. “The best chance to deploy capital is when things are going down.”
While being interviewed about share buybacks on US news channel CNBC in February 2018, Buffett uttered this great advice. When stocks fall, quality businesses often go on sale at bargain-basement prices.
Also, when stock markets crash, sometimes whole sectors or countries sell at knock-down prices. And as a contrarian, my favourite time to buy is when there’s blood in the streets as other investors rush to sell.
3. “Bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.”
In the New York Times piece mentioned above, Warren Buffett added this calming, level-headed quote. He knows that stock-market crashes can be the best time to buy beaten-down shares.
In other words, when share prices slide and slump, I take a deep breath and buy big while it lasts. This helped me survive and thrive after the 2000-03, 2007-09 and spring 2020 market collapses.
4. “Just buy something for less than it’s worth.”
When asked for details of his amazingly successful investing career in 1991, Buffett gave this simple reply. Again and again, he’s patiently explained how his only goal is to buy into quality companies at reasonable prices.
Of course, the more stock markets slide, the more shares of good businesses become deeply discounted. And given the opportunity to buy into great firms at marked-down prices, I can scarcely contain myself.
Lastly, this latest market shock may have further to run. Nobody rings a bell to signal the end of bear markets. And maybe nobody has the skill, expertise and experience to make money like Warren Buffett.
Even so, I do try to listen to the maestro when buying undervalued stocks for the long term. Also, Buffett just bought a ton of shares in a major US oil company this week. So clearly he’s not panicking quite yet!
