Invest in shares like Warren Buffett in the event of a stock market crash

Warren Buffett is a proven stockpicker with an amazing track record and this is how our writer thinks his success can be replicated in a stock market crash.

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Warren Buffett at a Berkshire Hathaway AGM

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Warren Buffett has famously said that investing isn’t about intellect (thankfully for me!), it’s about temperament. I for one am not going to argue with the Sage of Omaha, as he is known. Even more so as the Berkshire Hathaway share price overtakes the growth-focused Ark Innovation ETF. Warren Buffett has weathered many really serious market crashes. These include Black Monday in 1987, the dotcom bubble bursting in 2000, and the 2008 financial crisis (as well as some earlier ones few of us would remember). That’s why his advice is worth listening to and his example worth following. 

For investors, a stock market crash can mean losing a lot of money. But for long-term investors, it also means the chance to position oneself to potentially make a lot of money too. In every crisis, there’s an opportunity as they say. 

Warren Buffett on a falling market

Because in a stock market crash nearly everything goes down indiscriminately as investors panic, it can create an opportunity to pick up high-quality companies at a cheaper price. As Warren Buffett has said: “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.” This is exactly the situation when there’s a stock market crash.

Another famous Buffett-ism is: “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” This again encapsulates the idea that a stock market crash is an opportunity for savvy investors, rather than something to fear. Given that crashes are inevitable, and it’s possible there will be another in 2022, it’s worth being prepared for one.

The Buffett takeaways

So what does Buffett teach us? For long-term investors a crash is ideal. It’s not necessary to time a stock buy perfectly. It’s enough just to get a hopefully great, well researched company at a lower value than it would have been pre-crash.

I treat a stock market crash as an opportunity, especially if there’s cash available to buy shares at a better valuation. Berkshire Hathaway holds a lot of cash, presumably for this reason. As long-term investors, Buffett and his team want to buy shares at an attractive valuation. They don’t need to seize every opportunity that presents itself. He waits until he has a margin of safety and the odds of success are in his favour before pouncing.

3 things I’ll focus on if the stock market crashes

With everything that has been said, there are three things I’ll focus on if the stock market crashes. First up is trying to stay calm and not selling anything. Then I’ll focus on researching new shares and assessing if there are any emerging opportunities to invest in a great company. And finally, when I believe the dust is starting to settle, I’ll invest my cash in high-quality businesses that I know I want to own

That’s my plan. Pure and simple. As Buffett has pointed out, it’s not about intellect or being super-sophisticated. Instead, consistent success is about temperament. It’s also about seeing a crash as an opportunity to buy great companies that can provide growth and income.

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.

Andy Ross owns no share mentioned. The Motley Fool UK has 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.

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