Share prices are sliding again as Covid-19 fears mount. And there’s growing talk of a second stock market crash as lockdowns spread across Europe. At time of writing, the FTSE 100 has fallen to 5,643, erasing a chunk of its post-March recovery.
These are unnerving and unprecedented times, and you can hardly blame investors for being nervous. At moments like these, it’s worth listening to somebody who has seen it all before. US billionaire investor Warren Buffett has been through plenty of stock market crashes, and knows the importance of keeping a cool head when the heat is on.
Buffett is famous for treating a stock market crash as a buying opportunity, urging investors to ‘get greedy while others are fearful’. As he once said: “Bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.” Not just America’s future, but the UK’s future as well.
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I’m seizing this stock market crash opportunity
Everywhere I look, UK shares are trading at marked-down prices. However, investors shouldn’t pick up stock indiscriminately. Some sectors are taking the pandemic particularly hard. Notably the airlines, cruise liners, bricks and mortar retailers, and the leisure and hospitality industry. Others are doing better, such as technology stocks, defensive utilities and the healthcare sector.
So beware of loading up on bargains, this could be a time to buy quality stocks like Unilever. I’d aim to buy and hold for the long term, rather than to make a fast buck. As Buffett said: “Time is the friend of the wonderful business, the enemy of the mediocre.” That remains true, even if we get another stock market crash.
I am also resisting the temptation to dump my portfolio and exit the market. Again, Buffett said that during the 2008 financial panic it would have been foolish to sell shares in solid businesses with good long-term prospects: “True, any one of them might eventually disappoint, but as a group they were certain to do well.” You just have to give it time.
Stay cool like Buffett
The pandemic may be unprecedented, but the stock market crash isn’t. Markets correct all the time, but the long-term trajectory is upwards. In 2018, Buffet listed some of the political and economic traumas the US has been through since 1942, including “a long period of viral inflation, a 21% prime rate, several controversial and costly wars, the resignation of a president, a pervasive collapse in home values, and a paralysing financial panic”. His conclusion? “All engendered scary headlines; all are now history.”
One day, the coronavirus maybe history too. Let’s hope so. Dumping all my stocks today in case markets crash would suggest the world of investing is in peril. Despite current uncertainties, I don’t think the situation is quite that bad.
I doubt Buffett does either.
