Warren Buffett Says You Should Invest When the Market Is Down — Here’s Why
Written by
Laura Bogart
Edited by
Kristen Mae
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Whether you’re investing hundreds or hundreds of thousands, having money in the stock market during a downturn can send anyone reaching for the Tums. Or make you panic. And in that panic, you might be tempted to dump everything and run for the hills. After all, when stock prices are falling, it can feel like the safest move is to wait it out.
Your stomach and your nerves might think so — but Warren Buffett is made of sterner stuff. Celebrated as the “Oracle of Omaha,” the Berkshire Hathaway chairman is known for his investing acumen. As part of GOBankingRates’ Top 100 Money Experts series, we explored why, for Buffett, a down market isn’t automatically a signal to sell. More often, it’s a rare chance to buy strong companies at lower prices — provided you have the patience to hold them for years.
Sometimes, leaning into the long term looks like doing the scary thing, as in, putting money into the market even when headlines are grim and share prices are sliding. Buffett has his reasons, and his success proves that they’re wise ones.
How Thinking Long Term Reduces Risk
One of Buffett’s most common remarks about investing is that his favorite holding period is “forever.” While his investments may not last until the literal end of time, he puts money in companies he believes can create value for a very long time, regardless of daily market swings.
Writing about Buffett’s investing style, Picture Perfect Portfolios summed up his approach succinctly: “He firmly believes that the best way to achieve significant returns in the stock market is to buy great businesses at reasonable prices and then hold on to them for as long as possible.”
Holding onto investments for as long as possible allows you to benefit from compound interest, where your earnings grow into more earnings over time. Buffett’s idea is simple: Good businesses will increase in value, so sticking with them will ultimately reduce your risk.
“It offers the advantage of time, allowing investment holdings to compound and grow exponentially over time. The method contrasts with short-term trading, where investors buy and sell stocks within short intervals to profit from market volatility,” writer Nomadic Samuel said. “Long-term investing also tends to be less risky as it is less affected by short-term market fluctuations and offers more time for recovery in case of a downturn.”
Other People’s Fear Can Be Your Fortune
At times of peak market-related fears, like the 2008 crash and the pandemic, many people rushed to pull their money out of the stock market. Not Buffett. He often sees these pullbacks as opportunities rather than threats. When other investors flee the market, driving stock prices down, savvy investors can seize upon these bargain prices while continuing to diversify their portfolios.
In an op-ed for the New York Times on the heels of the 2008 crisis, Buffett shared his simple rule for investing: “Be fearful when others are greedy, and greedy when others are fearful.”
He put his own advice into action during the peak bear market of 2007-09, when the S&P 500 suffered massive losses. As investors panicked and sold their shares, Buffett bought more — maneuvering his bond-heavy personal portfolio to include more stocks. As American companies regained profitability, Buffett saw his investments gain greater value.
Choose Your Companies Wisely
However, getting greedy doesn’t mean rushing in to snatch up any stock that’s dropped. Buffett advises having a carefully calibrated barometer when it comes to selecting the companies you want to buy — because you’ll want to hold them for decades to come.
The Oracle of Omaha uses decidedly earth-bound metrics: looking into a company’s underlying fundamentals, such as earnings, assets, cash flow and future growth potential, to decide which companies interest him.
He also looks for strong, consistent earnings, as well as competent and grounded management. Stability is the name of the game when seeking out companies that could carry you through a market downturn, and Buffett prefers companies that have been around for at least a decade.
There are plenty of places to experiment in life, from the art you consume to the brands of hot sauce you try. The companies you invest in, however, shouldn’t be one of them. Buffett believes in sticking within your “circle of competence” — only investing in companies whose business model, products and competitive landscape make sense to you.
Bottom Line
Investing doesn’t have to give you emotional and financial whiplash. Following Warren Buffett’s approach — buying strong companies you understand, holding them for the long term, and using market downturns as opportunities — can help you build wealth without reacting to every market swing.
This article is part of GOBankingRates’ Top 100 Money Experts series, where we spotlight expert answers to the biggest financial questions Americans are asking. Have a question of your own? Share it on our hub — and you’ll be entered for a chance to win $500.
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