At the grand old age of 91, it’s fair to say that Warren Buffett has seen a market crash or two in his long life. Despite this, he’s still managed to become one of the richest people in the world, thanks to his level-headed approach (and awesome stock-picking skills). I think that makes him worth listening to at times like this.
Here are three bits of Buffett brilliance for troubled times.
Buy the best
“Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
As a general rule, most people like it when they can acquire something really nice for a lower price than expected to pay. That’s why Black Friday and Amazon Prime Day are so popular. In the topsy-turvy world of investing however, many people find it hard to buy when prices fall. To really benefit from a stock market crash, therefore I need to challenge this aversion.
Of course, this does not mean I buy any old thing because it’s now trading at a low(er) price. No, the point here is to look for UK stocks (and possibly a few from abroad) that have all the hallmarks of quality businesses. For Buffett, these are companies that have ‘economic moats’, competitive advantages that mean they can continue growing revenue and profits for many years.
Get stuck in
“A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.”
If the previous quote from Buffett highlights what sort of stock I should be hunting down, this second bit of wisdom is all about how much of it I should be buying. Put simply, Buffett believes we should be snapping up as much as we can. Of course, this advice is reversed when markets are soaring. In such a scenario, the ‘Sage of Omaha’ thinks we need to be prepared to buy less or sit things out completely.
Now, going against the crowd is never easy, especially when share prices continue to tumble. So one way I try to get around this is to be greedy in tranches. In other words, I make multiple purchases of great UK stocks rather than attempting to buy at the absolute bottom to maximise my gains.
Psychologically, this makes things much more bearable. It also ensures I don’t suffer from ‘analysis paralysis’ and miss a great opportunity.
Take your time
“The stock market is a device for transferring money from the impatient to the patient.”
As a long-term Foolish investor, these final words from Buffett are about as soothing as I can find. Knowing I plan to stay invested for decades helps take the sting out of nasty market moves like this one.
Adopting this mentality also gives me an edge on professional investors. Unlike them, I’m not required to explain my decision-making or outperform a specific benchmark every quarter to keep my job. Put another way, their chosen careers require these undeniably talented people to do everything that Buffett advises against. They are forced to become impatient.
It’s this commitment to focusing on the long-term outcome that makes a crash or correction easier for me to bear. It’s also what I believe will see me eventually accumulate a non-insignificant amount of wealth.