If you can keep your head while the FTSE 100 stock market crash rages, then you have probably been heeding the greatest investor of them all, Warren Buffett. The US billionaire has seen it all before, and has repeatedly said that investors can expect uncertain times like these, and should take advantage of them.
You probably know Buffett by his most famous quote, which definitely applies today. “Be fearful when others are greedy, greedy when others are fearful.” As FTSE 100 investors panic, the stock market crash is offering an amazing opportunity to pick up bargain stocks. Mr Buffett had lesser-known words of wisdom that also apply right now, and I’ve picked out three of them.
The first reflects the state of mind many of as find ourselves in, as the world changes before our very eyes. “Remember that the stock market is a manic depressive.”
Stay calm as share prices crash
It is certainly manic at the moment, having endured the fastest stock market crash in history, as the uncertainty surrounding Covid-19 plays out. Share prices fly all over the place on the latest news, and in unpredictable ways. Instead of climbing on interest rate cuts and stimulus, for example, it has reacted by plunging.
As Buffett’s quote highlights, this is nothing new. You have to respond by staying calm and taking advantage of its moments of madness by investing in shares, at a discounted price.
Make sure the price is right
Talking of which. Buffett also famously said that “Price is what you pay. Value is what you get.” Just because some shares are dirt cheap right now, doesn’t mean you should automatically buy them. Take the travel industry. It has been hit particularly hard as people stop flying and hotels lie empty, but its recovery prospects are hanging in the balance.
If Government support keeps them afloat, they could still thrive. I can imagine frustrated holidaymakers indulging in a booking frenzy once the crisis recedes. But you also have to be aware of the massive risk you are taking on. Now is the time to focus on companies with strong balance sheets and minimal debt, as these are also trading at bargain prices.
Buy FTSE 100 stocks for the long term
The final quote should tighten your focus on investing for the long term. “If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.”
As the stock market crash grinds on, it can be tempting to switch from investing to trading. In other words, buying stocks for short term gain, say, from a sudden rally.
The problem is that you cannot predict where share prices will go next, especially in a crazy stock market crash like this one. So buy for the long term instead. Hopefully in 10 years, the coronavirus-induced crash will be a bad memory, but today’s stock picks will be profitable.
Carry on and keep listening to Warren Buffett.
Harvey Jones has no position in any of the shares 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.