Warren Buffett’s Advice on What To Do When the Stock Market Crashes | Global News Avenue

Stocks of Warren Buffett’s conglomerate (Berkshire Hathaway) since 1965 (bk.b), which has provided 19.9% ​​compounding annual returns, almost twice the S&P 500 index during the same period. Unlike many famous Wall Street monetary managers, Buffett thrived during the market crash, following a direct approach any investor can follow: Buy quality businesses at a discount when others panic for sale.

Below, we break down the principles that made Buffett successful through several market crashes.

Principle 1: Stay calm and avoid panic for sale

Buffett often stressed: “The stock market aims to
The patient is active. ” He warned of reluctance to make emotional decisions during market recessions, noting that selling out of fear often results in huge losses.

look S&P 500 Index Long-term performance proves his point- despite countless short selling, recession and geopolitical crises, the $100 invested in 1928 is worth more than $982K today.

Principle 2:

One of Buffett’s most famous and repetitive quotes is: “When others are greedy and greedy, you must be greedy only when others are afraid.” This is not just a smart word game, but a backbone of his wealth strategy.

Although most investors Market collapseBuffett reached for his checkbook. During the 2008 financial crisis, when bank stocks fell freely, many predicted the collapse of the financial system, and Buffett invested $5 billion in Goldman Sachs Group ((GS). The deal includes a preferred stock with a dividend yield of 10% and a warrant for the purchase of common stock, which ultimately led Berkshire Hathaway to more than $3 billion in profits.

Principle 3: Focus on the business foundation

Buffett’s simple test of market decline: Stock price drops 30% Change how many people will drink next year? Will it affect how many people will use their American Express Card? If the answer is no, then the intrinsic value remains intact despite the temporary opinions of the market.

Berkshire Hathaway vs. Washington Post This method is illustrated. In 1973, during a severe market decline, Buffett bought stocks, calculating only 25% of its intrinsic value. Prices have dropped further since then, but Buffett didn’t stop it – he understands the business’s basic advantages are not reflected in its share price. His patience paid off: By 1985, Berkshire’s $10.6 million investment surged to more than $200 million, with a return of nearly 1,900%. It’s not investment wizards, but Buffett realizes that terrible markets often misunderstand great businesses.

Principle 4: Don’t do it for the market era

Buffett dissuaded attempts to predict market movements, calling it a fool’s game, but a long-term (very) one. Buffett puts the money in his mouth again, holding it
Coca-Cola has been in the form of 36 years and has held stake in American Express since the 1960s.

Principle 5: Keep cash reserves for opportunities

While most financial advisers recommend keeping investments in full, Buffett looks at cash in a different way, rather than something that earns interest or dividends in a bank account, but as “financial ammunition” when rare prospects appear.

Berkshire’s huge cash position – usually in Bull market– Transfer responsibility to Buffett’s secret weapon during the crash. In 2010, after deploying billions of dollars during the financial crisis, Buffett formally formalized the strategy in his shareholder letter and promised to maintain a cash reserve of at least $10 billion (though it can usually stay close to $20 billion). This is not an overcaution, but a strategic preparation for the next inevitable market panic.

In the mid-2020s, with the arrival of the market, Buffett was Holding record cash inventories again.

Bottom line

Buffett’s philosophy emphasizes the importance of staying rational Fundamentalsand bringing market decline is an opportunity rather than a setback.