3 Warren Buffett Quotes To Keep Us Sane in a Volatile Market
2022 has not been the best year if you are an investor.
The stock market and Cryptocurrency market have been bleeding.
Take the S&P 500 index, which is considered to be an excellent proxy for the US stock market’s performance. The index has fallen about 19% year to date (YTD) at the time of writing (12 May 2022), which is dangerously close to the -20% threshold that many investors consider bear market territory.
In addition, the Nasdaq Composite has fallen 28.9% YTD.
Surprisingly, Singapore’s Straits Times Index (STI) has gone up about 3.3% YTD, increasing from 3,123.68 to 3,226.07 points.
But the STI aside, things could get worse before they get better.
Amid all the doom-and-gloom, here are three quotes from Warren Buffett to help us during this stock market meltdown.
Focus on the Long-Term
During the depths of the Great Financial Crisis back in October 2008, Warren Buffett explained the need to look at the long term in an op-ed for The New York Times entitled, Buy American. I Am. (emphasis is mine):
“Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.“
Right now, people are fearful that the Covid-19 pandemic would slow down the world economy, triggering a recession.
While a recession may happen and stocks could continue languishing before recovering, we should remember that this is not new and we have gone past several market crashes previously.
So, “this too shall pass”.
And once the storm is over, stocks would continue going higher, as history has shown.
Rejoice When Share Prices Fall
Since the stock market does well over the long run, it makes sense to want lower prices to invest in.
Here’s an excerpt from Buffett’s 2011 Berkshire Hathaway shareholder letter (emphases are mine):
“If you are going to be a net buyer of stocks in the future, either directly with your own money or indirectly (through your ownership of a company that is repurchasing shares), you are hurt when stocks rise. You benefit when stocks swoon. Emotions, however, too often complicate the matter: Most people, including those who will be net buyers in the future, take comfort in seeing stock prices advance. These shareholders resemble a commuter who rejoices after the price of gas increases, simply because his tank contains a day’s supply.”
As investors, we must have an investment horizon that is far into the future, at least five years or more.
If we indeed have a long-term view of stocks, why worry about short-term market declines?
In fact, such short-term falls present the opportunity to buy more wonderful businesses at great prices.
Great Businesses Thrive
Great businesses usually continue doing well due to innovation and the likes.
Here’s what Buffett had to say in his 2016 Berkshire Hathaway shareholder letter (emphases are mine):
“American business – and consequently a basket of stocks – is virtually certain to be worth far more in the years ahead. Innovation, productivity gains, entrepreneurial spirit and an abundance of capital will see to that. Ever-present naysayers may prosper by marketing their gloomy forecasts. But heaven help them if they act on the nonsense they peddle.
Many companies, of course, will fall behind, and some will fail. Winnowing of that sort is a product of market dynamism. Moreover, the years ahead will occasionally deliver major market declines – even panics – that will affect virtually all stocks….
During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be unwarranted. Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well.”
In the 2016 same letter, Buffett also mentioned that every ten years or so, dark clouds would fill the economic skies and they would “briefly rain gold”.
When such a downpour happens, we should run outdoors with big washtubs and not small teaspoons.
Therefore, during market crashes such as now, we should keep our fear at bay and take massive action (provided we have done proper research on the companies and have our houses already in order) to build long-term wealth.
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Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock.