It was an announcement on tariffs that trampled stock markets-the trumpeted tariffs of 10% on all trading partners of the U.S. besides higher rates on those with a deficit of trade.
The S&P 500 lost over 11% from its peak in February. In terms of correction, it is now well placed on the territory. Being dragged by fears of an imminent war or invasion, recession further raises panic since any inflation could easily trigger such. It is an urgent question for most investors: What are you supposed to do when markets fall so drastically and abruptly?
The timeless message of Buffett: Do not panic
The legendary investor has long emphasized the need for calmness by investors in stormy times. Most memorable is his counsels that were not hewed out of an atlas on financial matters but out of a poem of the 19th century. In his shareholders’ letter to 2017, Buffett quote Rudyard Kipling’s If, a poem imploring resilience in the face of chaos: “If you can keep your head when all about you are losing theirs… Yours is the Earth and everything that’s in it.’
Here’s how Buffett interprets-what, for him-provides more than poetic consolation. Its cogs, he says, reflect a core investment philosophy: emotional discipline is the key. No one can anticipate the movements of the market exactly, although in the short term, it has a tendency to wild swings. But pulling out money because of panic in a downturn usually ends with regret. In contrast, remaining calm allows one to make smart long term decisions.
There is time for every correction: It happens! Of course.
Maybe, at this moment, you feel that this is quite alarming, but it is not unusual in any way. To date, there have been 21 market corrections (down 10% or more) by the S&P 500 since 1980. The average intra-year decline has been around 14%.
Bull markets last for considerably longer than bear markets-they also tend to last for fewer days, averaging much shorter. Data compiled by Hartford Funds state that, generally, bear markets in the United States from 1928 to date have been for less than 10 months. Buffett understands that “bad” is one of them, and that is where many investors took on the urge “to do something.” Emotional impulse has been known to cause some very expensive mistakes.
To paraphrase that same letter to shareholders in 2017, “The light can at any time go from green to red without pausing at yellow.” Indeed, there’s little in the way of yellow caution lights when it comes to market movement: it’s fast and unpredictable-more of the reason why pretending to know when to jump on or off the merry-go-round can be such a risky game.
Opportunity hides in panic
Buffett thinks there is opportunity and not just destruction in falling markets. When stocks do go down, he says you should keep buying them and even buy more. “Big opportunities come infrequently” was his comment written in 2009. “When it’s raining gold, reach for a bucket, not a thimble.”
To many, this would sound like horrible advice. After all, feeling antsy during the economic downside is pretty normal. But keep buying during the hard times, and you truly are buying stocks that are heavily discounted. This can do wonders for your wealth through time.
Eyes on the prize-long-term growth
Market dips are terrifying at the time, but when you’re investing for the long term, they’re just potholes on the road. Focus instead on the ultimate goal, whether that be retirement, buying a house, or nurturing wealth for generations. With a diversified portfolio, the stressful bull and bear are not so bothersome.
So during the next cycle when the headlines yell ‘crash’ and ‘recession’, remember what Buffett said-and Kipling too. Keep your cool, stick to your plan, and trust that the market will recover one day. It has always done so.
Staying cool under pressure, as Buffett demonstrates time and time again, is great advice for people; this is also the strategy that will carry their ability to achieve great results long term.
