Editor’s note: This article was first published in May 2022, during that year’s stock market fall; the mention of Buffett having just bought new stakes and added to existing ones, including Apple, refers to Berkshire Hathaway’s purchases in early 2022.
It is common knowledge that Warren Buffett’s investment philosophy has always been to buy shares and hold them for the very long term, regardless of market cycles and economic crises. On the other hand, most investors save and invest with their retirement in mind, and when markets fall for a long stretch, they start to wonder what they should do.
Warren Buffett is clear on this point, and the advice he gives them is very simple: “Don’t worry about it too much.”
“I would tell investors not to watch the market closely during a period of wild swings in the markets, because it will make you take bad decisions.”
Don’t watch the market closely
Warren Buffett told CNBC that investors who buy good companies will see results over time, over 10, 20 or 30 years, but if they try to buy and sell shares by guessing whether a fall or a rise is coming, they will not get very good results. In fact, this is the strategy followed by investment funds with professional managers, and they still fail to beat their benchmark indices.
“Money is made by investing in and owning good businesses for long periods of time. That is what investors should be doing when they invest in stocks,” Buffett added.
And speaking of investment funds, experts, Warren Buffett included, recommend buying index funds to diversify automatically and hold all the stocks that make up the index.
See also: The difference between ETFs and index funds
Warren Buffett’s advice for crises in the markets
Although we have sometimes suggested in previous articles that, if you see clear evidence of a crisis, getting out of the market to avoid a 20% fall could be a good strategy, we have to admit that this strategy has its risks. The biggest risk is missing out on the market’s recovery.
For Buffett, buy and hold is the ideal strategy even when the stock market collapses. As Buffett himself puts it: “If you can’t watch your shares fall by as much as 50% without losing sleep over it, perhaps investing in the stock market is not for you.”
Given that emotions come into play in investing, the truth is that if you try to sell your shares to avoid losses and then get back in later to increase your gains, it is only a matter of time before your emotions play a trick on you and you make plenty of investment mistakes.
If you hold shares in good companies, big falls in the markets are a time to consider taking advantage of the new share price to buy more. But selling what you already have with the idea of getting out and back in later is what has led many investors to lose money or reduce their returns.
“Stay the course and don’t let changes in the market, even big financial crises, make you change your mind and get out of the market. Stay in, because if you invested the right way, you will get good returns in the long run.”
On the other hand, for investors who are out of the market, times of crisis and big market falls are without a doubt an excellent buying opportunity.
In fact, Warren Buffett himself has taken advantage of the recent fall in stock markets to make new investments and to add to companies he already held, Apple among them.
See also: Warren Buffett turns 83: the best of Warren Buffett
See also: 17 surprising facts about Warren Buffett you probably didn’t know
Featured image: Miscellaneous Items in High Demand, PPOC, Library of Congress, Public domain, via Wikimedia Commons.
