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Why savvy investors could make their fortunes from this market correction

I reckon the fear of Covid-19 is worse than the actual effects of the coronavirus. Why, for example, are people stripping bare supermarket shelves of toilet rolls?

It’s hard for me to imagine the virus specifically targeting the staff who labour daily to produce the lovely soft tissue we’re all so fond of. So I don’t reckon toilet paper factories will grind to a complete halt.

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But I can’t blame folks for feeling nervous. The outbreak is a crisis that looks set to deal out real human and economic consequences. But I reckon savvy investors can use the opportunities delivered by the setback in the financial markets. They should be able to make real and enduring fortunes. And I think like that because it has always happened before with previous stock market falls.

What Buffett did last time

In one example, I wrote recently of how the Dow Jones Industrial Average had risen by around 300% in the years following Warren Buffett’s call to invest in stocks in October 2008. Back then, the markets were plunging because of the credit crunch and financial crisis.

Buffett followed his own advice and was investing in good-quality shares. As it happened, the DOW slipped around 25% lower immediately after the New York Times published his bullish article. But Buffett came out on top in the years that followed.

And conditions are strikingly similar in the markets today compared with what they were in 2008. The indices may not yet have fallen as far as back then, but investor sentiment is in shreds and collective fear is in the air, just the same.

To the savvy investor, such conditions could present a compelling opportunity of the sort that doesn’t come around very often. And one simple way to take advantage is to begin a programme of drip-feeding money into the markets straight away.

Tracking and stock picking

The Buffett example above demonstrates that we can do well by simply investing in the general stock market. I’d do that by targeting low-cost index tracker funds. And I wouldn’t try to be too clever by seeking out specialist niches in the market or by trying to guess what the next hot emerging market might be.

Indeed, my favourite index tracker funds would simply be those that follow the FTSE 100 index, the FTSE 250 index and America’s S&P 500. I reckon all three vehicles will be fit for riding a future recovery in the markets and further growth after that.

But realistically, to make a fortune from the stock market because of the current setback as this article’s headline suggests is possible, I think you’ve got to pick a few stocks representing individual companies.

So, in the middle of all the current market madness, now’s the time to go to work. And I’d begin by researching shares and building a watch list. Then, when the opportunities seem ripe, I’d hold my nose and press the ‘buy’ button with a view to holding for the long term.

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Kevin Godbold has no position in any 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.