Warren Buffett has invested in multiple stock market crashes. When he bought his first shares in 1942, “World War 2 didn’t look so good”. However, he had faith that the war would be won and that the US economy would recover in the long term.
With Buffett’s long history of making a success in the stock market, it is natural that investors find him inspirational. In these turbulent times, reading what he has said in the past and looking at the moves he has made provides us with some sort of comfort.
Luckily for us, over the years Buffett has given plenty of interviews and has also written his thoughts on the stock market in his annual letter to shareholders of Berkshire Hathaway.
The stock market is a device
Buffett understands that a rational investor has to remove emotion from the equation.
Nervousness can lead to poor decision-making, which could ultimately lead to an investor turning a paper loss into a realised loss. By selling too early, investors will miss out on the likely recovery of the stock market.
In these times, patience might be the best virtue for the personal investor. In the past, Warren Buffett has said that the “stock market is a device for transferring money from the impatient to the patient”.
Be greedy when others are fearful
Instead, investors might be wise to see this as an opportunity to buy shares in what could be an under-valued stock market.
With the FTSE 100 dropping by 23% since the start of the year, many of its component companies are trading at prices below intrinsic value. This is a great opportunity for value investors to buy quality stocks at great prices.
Buffett has advised personal investors to be “fearful when others are greedy, and greedy when others are fearful”. With the nervousness surrounding the economy, many people are selling shares and moving into other investments.
However, since the FTSE 100 began, the economy has faced many setbacks. Each time the stock market has recovered its losses and grown.
The intelligent investor
Warren Buffett was a disciple of Benjamin Graham and learnt much of the art of value investing from him when they worked together.
Graham taught a young Buffett that “price is what you pay, value is what you get”. For personal investors, this is important to remember. Just because something is selling cheap, it might not necessarily be a good buy.
Like Buffett, Graham was also known for his turn of phrase. He saw an intelligent investor as “a realist, who sells to optimists and buys from pessimists”.
With the media announcing future blows to the economy and stock market, it is hard to believe that things will ever get better.
Graham had something to say on this, too: “To be an investor you must be a believer in a better tomorrow”.
Buffett believed in a better tomorrow when he made his first investment in 1942. The rest is history.
T Sligo has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short June 2020 $205 calls on Berkshire Hathaway (B shares). 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.