The past 13 years have been an unprecedented time to own stocks and shares. On 6 March 2009, the US S&P 500 index crashed to an intra-day low of 666 points before bouncing back. Since then, it has soared skywards at an unprecedented rate. As I write, the index stands at 4,785.90 points. That’s a gain of almost 4,120 points from the bottom of the bear (falling) market of 2007-09. Today, the S&P 500 is more than seven times (+618.6%) the level of its March 2009 low. But as stocks head to the moon, I become increasingly worried. When I fret about the next stock market crash, I seek the wisdom of mega-billionaire investment guru Warren Buffett. Here are five lessons I’ve absorbed from the ‘Oracle of Omaha’.
1. “Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold.”
In his 2016 letter to shareholders, Warren Buffett said this in reference to stock market crashes. He then added, “When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons. And that we will do.” When ‘Uncle Warren’ wrote this, US stocks had risen for seven years in a row. It took until March 2020 for the next crash to arrive — and then it was largely over a month later.
2. “A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.”
On 16 October 2008, Buffett offered this profound advice. It came from this fantastic New York Times (NYT) article, written during the depths of the 2008 global financial crisis. In this piece, Buffett revealed that he was investing 100% of his personal wealth into US stocks. The stock market crash bottomed out five months later and no doubt Buffett went on to become even richer.
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 very same NYT article, Buffett added these encouraging words. He did a great job of reassuring stressed-out investors that stock market crashes are a great time to buy beaten-down stocks. For me, when shares prices have slumped, it’s time to dig deep and buy big.
4. “The best chance to deploy capital is when things are going down.”
Buffett made the above remark in a CNBC interview about share buybacks in February 2018. But this comment applies equally to investing in cheap stocks during stock market crashes. For me, there is no better time to buy than when market meltdowns drag the value of a great business into the bargain bin.
5. “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
As a veteran value investor, I take this quote to heart. For me, what better time is there to buy shares when they are deeply discounted in a stock market crash? In 2003, 2009, and March 2020, I bought some fantastic stocks at knock-down prices. Just as Buffett said in 1991, I want to “Just buy something for less than it’s worth.”
Finally, I’ve taken Buffett’s excellent advice to heart. For months, my wife and I have been building a war chest to buy more cheap UK shares in the next stock market crash. Ideally, this cash pile will buy more bang for our buck when prices eventually reverse!
