3 things Warren Buffett does during a market crash that I’m copying

Jon Smith takes some points on board from legendary investor Warren Buffett about what to do when a market crash hits.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Warren Buffett at a Berkshire Hathaway AGM

Image source: The Motley Fool

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

At the ripe age of 91, Warren Buffett is still active in investing. There’s no reason why he shouldn’t be, given his strong track record of picking winners over several decades. His experience is also invaluable as he’s lived and invested through many economic cycles, including market crashes. Given the current wobble in the markets that we’re seeing, here are a few of his pointers that I’m trying to follow.

Buying the dip

Warren Buffett has been quoted as saying that “whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down”. A stock can be marked down when it’s trading at a historically low level. Given the fact that the Nasdaq index is down over 10% so far this year, there are plenty of companies trading on the low side.

Buffett uses a slump to buy not just any stocks, but quality ones. After all, there’s no point me buying stocks during a crash that are going to struggle for years to come. Obviously, this isn’t an easy one to call. Recently, I wrote about four of my favourite stocks that I’d buy if we saw a further crash.

Don’t panic

Another great point from Warren Buffett is that “the sillier the market’s behavior, the greater the opportunity for the businesslike investor”. Often during a market crash, emotion takes over for a lot of investors. It’s tough to see high unrealised losses from stocks that I own and not to panic. This can often trigger more selling activity, pushing prices down to irrational levels.

It’s clear that Buffett doesn’t panic during these periods of extreme uncertainty. He acts in a businesslike way, in effect taking out emotion from the picture. For me, it’s a reminder to keep a cool head. It’s also a reminder to actually flip the negative into a positive and to see a crash as a good opportunity to buy cheap stocks.

Following Warren Buffett in being patient

Finally, I can learn from the point that “no matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant”.

During a market crash, I might have to sit tight for several months before the market recovers. For example, the FTSE 100 only recently broke back above levels seen before the pandemic hit. Some things simply take time. So during a crash, I need to temper my expectations of how long I might need to hold some stocks that are showing a loss for me.

Something that can help me in this regard is if I have some allocation to top dividend stocks. Even if the share price might be falling, I can still generate income from the dividend payments during this time. I think this is a great tool to use as part of my overall stock portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jon Smith and The Motley Fool have no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »