Warren Buffett is no longer the CEO of Berkshire Hathaway, the company he spent six decades building into one of the world’s largest conglomerates. But the lessons he taught investors and people along the way will live on forever.
One of those, in particular, concerns how to invest when the market gets tough and pulls back significantly. In fact, Buffett has been giving advice about this topic for five decades, and history shows he’s never been wrong.
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Be fearful when others are greedy
Buffett has time and again zigged when the rest of the market has zagged, making a fortune for himself and Berkshire investors along the way. In 1974, the market was hit hard by incredibly high inflation and an oil crisis. The Dow Jones Industrial Average fell below 600, yet Buffett didn’t bat an eye. Toward the end of 1974, Buffett told Forbes, “This is the time to start investing.”
Buffett turned out to be right, and it wouldn’t be the first time.
Buffett also put money to work during the Great Recession of 2008, as some of the country’s largest banks were on the brink of failure. In 2008, Buffett penned a New York Times op-ed titled “Buy American. I am.” Buffett told investors to “be fearful when others are greedy, and be greedy when others are fearful.”
That same year, Berkshire injected $5 billion into Goldman Sachs in return for perpetual preferred shares and warrants to eventually purchase common stock. The company would set up a similar agreement with Bank of America in 2011. Both investments would pay out big for Buffett and Berkshire down the line.
As recently as this year, Buffett demonstrated similar sentiment during an interview with CNBC. “Well, the most likely time to buy things is when nobody else will answer their phones,” he said.
Retail investors actually have more in common with Buffett than institutional investors, as most institutional investors typically invest on 12- to 18-month time horizons. They need to beat the market to prove they are worth the high fees that many hedge funds charge.
But retail investors can hold stocks for 10, 20, or 30 years and have the gift of time, which Buffett has repeatedly credited for part of his success. So, when the market goes down, if you have a long runway ahead, grit through the pain and buy stocks.
