Original author: BitpushNews Mary Liu
Be fearful when others are greedy and be greedy when others are fearful. This simple but profound motto comes from the mouth of 94-year-old billionaire investor Warren Buffett.
This market prophet known as the Oracle of Omaha once again demonstrated the value of this motto with his accurate judgment - he seemed to have foreseen that Donald Trumps policies might bring a storm to Wall Street.
Yesterday, Wall Street encountered Black Monday and the market fell sharply, confirming Buffetts prophecy. Investors concerns about economic recession intensified, triggering panic selling in the market. The SP 500 index fell more than 9% from its historical high on February 19, just one step away from a correction (defined as a drop of 10% or more from the previous high). Among the top 10 richest people, only Buffetts net worth rose against the trend.
For Buffett, the market crash undoubtedly once again proved the foresight and correctness of his investment strategy.
Planning for a Trump recession
Buffetts Berkshire Hathaway has continued to sell off its stock holdings in recent years, amounting to billions of dollars, and has instead hoarded huge amounts of cash.
Data shows that Buffett has sold more stocks than he bought for nine consecutive quarters, including a significant reduction in holdings of shares in many well-known companies. As early as last year, before the Trump administration took office, Buffett began to sell most of Apple shares and reduced his investments in Bank of America and Citigroup.
In the past few months, Berkshire Hathaways cash reserves have soared to a staggering $334 billion, accounting for more than one-third of its entire investment portfolio. Shockingly, this cash reserve size even exceeds the total market value of all listed companies in the UK FTSE 100 index.
Buffett is a typical long-term investor who prefers to sit on the sidelines and patiently wait for the best opportunity rather than blindly chasing market hotspots and the latest trends.
Despite holding a huge amount of cash, Buffett explicitly denied that he prefers cash to stocks. In his February letter to shareholders, he emphasized: Although some commentators believe that Berkshires cash position is abnormally large, most of your funds are still invested in stocks, and this investment preference will not change.
As panic spreads, Buffetts motto becomes the golden rule again
As markets fluctuate, its worth listening again to the advice of this investing legend.
“How far the stock market may fall in the short term is simply impossible to predict,” he wrote in his 2017 letter to shareholders. But if a big drop does occur, he added, keep in mind these words from Rudyard Kipling’s classic poem “If,” written around 1895:
“If you can remain calm when all around you are losing their minds…if you can wait and not grow tired of waiting…if you can think—and not make thought your goal…if you can believe in yourself when all others doubt…then the earth and everything in it will be yours.”
Why keeping calm pays off
It’s worth noting that Buffett was talking about major declines in U.S. stocks, such as the 2007-2009 bear market, during which the SP 500 lost more than 50% of its value. Compared to that time, the current correction investors are experiencing is far less severe than that.
In fact, stock market corrections are a normal part of the capital market. According to data from Bader Private Wealth Management, the SP 500 has fallen by 10% or more 21 times since 1980, with an average annual decline of 14%.
Granted, when markets change drastically, it’s often difficult for investors to accurately predict future trends. As Buffett wrote in 2017:
No one can tell you when these (crashes) will happen. The light can go from green to red at any time, and there will be no yellow light buffer.
Buffett firmly believes that market downturns contain extraordinary opportunities because historical data has proven countless times that the market will eventually resume its upward trajectory, and all value investors need to do is wait patiently and make full use of the market downturn to pick up cheap chips.
Data from the Hartford Fund Management Company shows that since 1928, the average bear market in the U.S. stock market has lasted less than 10 months. A bear market is defined as a drop of 20% or more from a recent high. For investors who plan to invest for decades, the impact of a bear market is just a brief moment in the long investment process.
Therefore, even in the panic and agony of a bear market, always keep your eyes on the ultimate prize - the long-term financial goals you are striving for. Investing as the market falls is the equivalent of actively buying stocks when they are discounted. As long as you stick to a diversified investment strategy, the deeper the stock price falls, the better the bargain you can get.
Buffetts investment philosophy echoes a quote from his 2009 shareholder letter, which emphasizes the importance of actively seizing investment opportunities during market downturns: Big opportunities dont come often. When gold falls from the sky, catch it with a bucket, not a thimble.
