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Rupert Hargreaves
Rupert Hargreaves
Articles (1121)  | Author's Website |

Warren Buffett's Rules for Investing in a Crisis

Thoughts from the Sage of Omaha on long-term investing

March 24, 2020

At nearly 90 years of age, Warren Buffett (Trades, Portfolio) is not only one of the most successful investors of all time, he's also one of the most experienced.

Buffett started investing in stocks when he was just a teenager. That means he has more than seven decades of investing experience under his belt.

During this time, he's seen wars, recessions, market booms, busts, the financial crisis, the S&L crisis, the Cuban missile crisis and many more major market-movers. While every market crisis has had its unique challenges, there's one thing that has untied them - they've come to an end. That's what has been driving his investment strategy for decades.

Buffett's view on long-term investing

Buffett explained this view in 2008 in an opinion piece for The New York Times:

"The financial world is a mess, both in the United States and abroad...

I've been buying American stocks...

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation's many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10, and 20 years from now."

The Sage of Omaha then when on to explain that while it is impossible for anyone to predict the direction of the market in the short-term, from a long-term perspective, equities should provide a better investment than cash.

Don't try to time the market

Buffett also warned that the market would turn long before "either sentiment or the economy turns up." So, he went on to add, "if you wait for the robins, spring will be over."

"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."

So here's Buffett's advice for investing in a time of uncertainty. While it might look as if the world is about to end in the middle of a market decline, evidence suggests that over the long-term, businesses and the stock market will grow.

Cash might appear to be the most attractive asset in times of crisis, but it is also, as Buffett wrote in 2008, a "terrible" one because it pays virtually nothing and "is certain to depreciate in value."

Some companies won't survive the bear market, but others might emerge stronger. Businesses with weak balance sheets, no competitive advantage and high operational gearing will suffer. Meanwhile, companies with strong balance sheets, competitive advantages and adjustable cost bases should be able to weather the storm.

One of Buffett's rules for investing is to only invest in stocks that you would be happy owning if the market closed the next day. This is one of the few times in history when the idea of a market closure has ever been seriously considered. Therefore, now more than ever, investors may want to pay attention to this advice.

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About the author:

Rupert Hargreaves
Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. He is the editor and co-owner of Hidden Value Stocks, a quarterly investment newsletter aimed at institutional investors.

Rupert holds qualifications from the Chartered Institute for Securities & Investment and the CFA Society of the UK. He covers everything value investing for ValueWalk and other sites on a freelance basis.

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