With the recent market turmoil, I found myself seeking reassurance from one of the greatest investors of all time, Warren Buffett. At 91 years old, Buffett has lived through his fair share of market downturns, and with that comes invaluable wisdom about the markets and where to put his money.
In October 2008, Buffett published a truly inspiring article on The New York Times titled “Buy American. I Am”. His comments and advice in the article provided insight into the moves of a master investor at what was roughly the low point of the Great Recession and may be of some help today as we move through another volatile downturn in the economy and the markets.
Buffett looks for opportunities to buy
In his essay, Buffett begins by delivering one of his most famous quotes about his buying strategy:
“A simple rule dictates my purchase: be afraid when others are greedy and be greedy when others are afraid.”
The ability to make sound decisions when the rest of the market is panicking is, in large part, what separates the winners from the losers in the market. Buffett understands this better than most. The current market turmoil is probably the first time that new investors have experienced a true “panic” in the market. Unlike the flash crash in March 2020 and the rapid recovery that followed, the current market has a prolonged negative sentiment.
In fact, the Chicago Board Options Exchange (CBOE) volatility index (or the VIX), an index that generates a 30-day volatility forecast and is often seen as a measure of general sentiment, has closed above 30 in 30 days for the past six months. With the exception of 2020, the last time it happened was during the Great Recession, the same crash Buffett wrote about in his article on The New York Times. It goes without saying that fear has a stranglehold on the stock market right now.
Don’t wait for the economy to change to start shopping
Buffett goes on to write that stocks often start rising long before the economy turns positive:
“In the early 1980s, the time to buy stocks was when inflation was soaring and the economy was rock bottom… In short, bad news is an investor’s best friend. It allows you to buy a piece of the stock.” America’s future at a reduced price.”
This is evident in the Consumer’s price index (CPI) figures in the 1980s. The CPI peaked at almost 15% in 1980, but the S&P 500 It rose 30% that same year. While Buffett reiterated that he doesn’t try to time the market during downturns, discounts offered to investors during weak economic times are often big bets in the long run.
Therefore, negative headlines are often a lagging indicator of stock market performance. As long as investors are comfortable with stocks continuing to fall in the short term, times of economic downturn are an incredible entry point for solid businesses.
Buffett has been buying
So what is Buffett doing during this latest bear market? The short answer shouldn’t be surprising. he has been buying.
Some notable purchases made by Buffett’s Berkshire Hathaway Inc. (BRK.A 1.15%)(BRK.B 1.38%) has been:
- The acquisition of the Allegany insurance company.
- The purchase of 121 million shares of hp inc. — more than $4 billion.
- Big bets on oil stocks like Chevron Y Western Petroleum.
- The purchase of 7 million shares of Apple.
It’s hard to tell what the near-term future holds for stocks, but it’s obvious that Buffett sees plenty of buying opportunities in the market as prices pull back.
Conclusion: negative sentiment is a buying opportunity
It’s no secret that sentiment drives the market in the short term. Investing in high-quality businesses when every headline paints a picture of doom and gloom is one of the hardest parts of being an investor. But Warren Buffett has shown us for decades that this is the exact time to go on the offensive. And if Berkshire Hathaway’s recent buying activity is any indicator, the market’s long-term outlook holds plenty of potential.