Here’s Warren Buffett’s advice when stock markets are shaky

As well as being among the world’s richest people, Warren Buffett is an investing legend. After recent market swings, here’s his advice for troubled times.

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On 16 February, the UK’s FTSE 100 hit an all-time high of 8,047.06 points. Since then, it’s lost 6.1% of its value, undermined by fears of a new banking crisis. Meanwhile, the US S&P 500 has lost almost 4% since 2 February. I wonder what my hero, Warren Buffett, would say about this latest bout of market weakness?

WWBD: what would Buffett do?

Warren Buffett is a mega-billionaire investor and philanthropist. Despite giving away almost $50bn to good causes, his personal fortune still exceeds $106bn. Known as the Oracle of Omaha, he is perhaps the world’s most successful investor.

Thus, when ‘Uncle Warren’ speaks, markets listen. Given recent market turmoil, I’m looking to my maestro for advice on what to do in shaky stock markets. Here are some of his wisest words.

1. Time is the friend of patient investors

During the depths of the 2007/09 global financial crisis, Buffett wrote this in an opinion piece for the New York Times: “In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”

For me, this demonstrates more than anything the long-term power of compounding returns for investors. The 20th century was deeply troubled at times and saw multiple market meltdowns, yet investors made outstanding returns.

2. Never bet against America

Warren Buffett has repeatedly warned investors not to bet against his home nation’s track record. For example, he once remarked: “We always live in an uncertain world. What is certain is that the United States will go forward over time.”

My family portfolio’s largest gains have come from decades of investing in US stocks. However, we’ve also done rather well from buying undervalued FTSE 100 stocks over many years.

3. Opportunity knocks

In his preface to the 2003 edition of The Intelligent Investor, written by Benjamin Graham (Buffett’s mentor), Warren wrote: “The sillier the market’s behaviour, the greater the opportunity for the business-like investor.”

In other words, when other investors panic and sell shares, I aim to snap them up to boost my long-term returns. After all, who is more likely to win in the long game: frightened sellers or business-like buyers?

4. Uncertainty equals opportunity

In an interview with Forbes magazine in August 1979 (when I was aged 11½!), Buffett declared, “Uncertainty actually is the friend of the buyer of long-term values.”

In other words, during periods of anxiety and volatility, bargains often appear. Having survived and thrived after the October 1987, 2000/03, 2007/09, and March 2020 market crashes, I 100% agree.

5. Buying businesses, not share prices

Ben Graham has referred to the stock market as a short-term voting machine, but a long-term weighing machine. Over shorter periods, market oscillations drag share prices up and down. But over decades, company earnings and cash flow are the driver of company valuations.

To this, Warren Buffett added the following corollary, “If a business does well, the stock eventually follows.” I love this quote, because it reminds me that by buying only quality businesses, I can stack the investing odds in my favour.

So I will happily keep ‘buying the dips’!

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.

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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