When the FTSE 100 is tanking, as it was last week, investing can feel challenging. No matter whether you’re a professional portfolio manager responsible for several billion pounds, or a private investor with just a few thousand invested in stocks, a 2-3% hit to your portfolio in just one day can be extremely frustrating.
However, staying calm and making rational decisions when global stock markets are plummeting is essential. If you can make good long-term decisions while others are panicking, history has shown that there’s a good chance things will work in your favour.
Words of wisdom
One thing I find helpful when stocks are falling is advice from top investors. Experts such as Warren Buffett have seen this kind of market volatility time and time again. Not only have they survived it, but they’ve often come out stronger.
With that in mind, today I’d like to share with you three top quotes from some of the best investors the world has ever seen. Hopefully, they’ll help you stay calm amidst the FTSE 100 volatility.
“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.”
Let’s start with this gem from Warren Buffett, who’s widely regarded as the greatest investor ever.
We all know that the key to investing is buying low and selling high. However, at times, this can actually be quite hard to do. Time after time, investors become greedy when stocks are rising, and then become fearful when stocks are falling. Ultimately, they end up making buy/sell decisions at exactly the wrong time.
Following this one single piece of advice from Buffett could greatly improve your chances of being a successful investor. The key is to learn to control your emotions and act rationally as other are losing their heads.
“The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell.”
With quotes like this, it’s no wonder Sir John Templeton was another investor who was up there with the best. Between 1954 and 2004, Templeton’s flagship fund averaged an annualised return of nearly 14% and in 1999, Money Magazine wrote that Templeton was “arguably the greatest global stock picker of the century.”
Like Buffett, Templeton knew that the best time to buy stocks is when they’re being offloaded cheaply. He understood that the secret to consistent performance is a disciplined investment process, no matter the market conditions.
While I don’t know if we have reached ‘maximum pessimism’ yet, I’d say pessimism is relatively high right now, particularly towards UK stocks.
“The real key to making money in stocks is not to get scared out of them.”
Lastly, this quote from Peter Lynch is another great one to remember when stocks are trending down. Lynch was one of the most successful portfolio managers of all time and averaged a return of 29% between 1977 and 1990 while at Fidelity Investments.
One thing that helped boost Lynch’s performance was his long-term focus. If stocks were falling sharply, Lynch was generally not too concerned because he knew that markets were likely to be higher five or 10 years down the road. That’s important to remember, when the market is having a panic sell-off.