With the recent market turmoil, I found myself looking for reassurance from one of the greatest investors of all time, Warren Buffett. At 91 years young, Buffett has lived through his fair share of market downturns, and with that comes some invaluable wisdom about the markets and where to put your money.
In October of 2008, Buffett published a truly inspirational piece in The New York Times titled "Buy American. I Am." His commentary 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 they might be of some help today as we progress through another volatile downturn in the economy and the markets.
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Buffett looks for opportunities to buy
In his essay, Buffett starts by delivering one of his most famous quotes regarding his buying strategy:
"A simple rule dictates my buying: Be fearful when others are greedy and be greedy when others are fearful."
The ability to make level-headed decisions when the rest of the market is panicking is, in no small 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 new investors have experienced true market "panic." Unlike the flash crash in March 2020 and the subsequent quick recovery, today's market has prolonged negative sentiment.
In fact, the Chicago Board Options Exchange (CBOE) Volatility Index (or the VIX) -- an index that generates a 30-day forward projection of volatility and is often viewed as a measurement of overall sentiment -- has closed above 30 on 30 days in the last six months. With the exception of 2020, the last time that happened was during the Great Recession, the very crash Buffett wrote about in his piece in The New York Times. Needless to say, fear has a stranglehold on the stock market at the moment.
NYSE: BRK.A
Key Data Points
Don't wait for the economy to turn to start buying
Buffett goes on to write that stocks often start to rise well before the economy turns positive:
"In the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank... In short, bad news is an investor's best friend. It lets you buy a slice of America's future at a marked down price."
This is evident in the Consumer Price Index (CPI) numbers in the 1980s. The CPI peaked at nearly 15% in 1980, yet the S&P 500 rose 30% that same year. While Buffett reiterated that he does not try to time the market during crashes, the discounts offered to investors during poor economic periods are usually great bets over the long term.
Thus, negative headlines are often a lagging indicator of stock market performance. As long as investors are comfortable with stocks continuing to dip in the short term, times of economic downturn are an incredible entry point into strong businesses.
NYSE: BRK.B
Key Data Points
Buffett has been buying
So, what is Buffett doing during this latest bear market? The short answer should not be surprising. He's been buying.
Some notable purchases made by Buffett's Berkshire Hathaway Inc. (BRK.A 1.08%)(BRK.B 1.14%) have been:
- The acquisition of insurance company Allegany.
- The purchase of 121 million shares of HP Inc. -- over $4 billion.
- Large bets on oil stocks like Chevron and Occidental Petroleum.
- The purchase of 7 million shares of Apple.
It's hard to know what the near-term future will hold for stocks, but it's obvious Buffett is seeing lots of buying opportunities in the market as prices recede.
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 over the decades that this is the exact time to go on the offensive. And if Berkshire Hathaway's recent buying activity is an indicator, the long-term prospects of the market have plenty of upside.
