It was always something of a mystery what was being liberated on President Donald Trump's "Liberation Day," but one thing is now clear: Billions of dollars in brokerage accounts across the country have been set free. The president's announcement of a blanket 10% tariff on all imports and higher taxes on most major trading partners clobbered investors.
After stocks edged up in regular trading Wednesday, the announcement set off a shock after hours. As of 7:15 p.m. ET, futures had not yet started trading, but some major names were down sharply. Shopify, the e-commerce software leader, had lost 9%. Tesla and Apple had each fallen 7%. Nvidia had slipped 5%. The rest of the "Magnificent Seven" stocks that had led the bull market of 2023 and 2024 had gotten hit hard as well, and the wipeout may be unprecedented in modern market history, at least for after-hours trading.
Much of this sell-off seems to be a visceral reaction to the news, and to the economic experiment driving it: The Trump administration has asked Americans to endure some economic pain in order to (according to its reasoning) strengthen the U.S. economy over the long term. It says tariffs will reshore businesses, reduce the trade deficit and dependence on foreign imports, and rebuild the country's manufacturing base.
Given the sea of red after hours on Wednesday, it's not surprising that investors would be panicking, especially since stocks were at all-time highs just weeks ago.
At times like these, it's worth remembering the sage advice of Warren Buffett, the Berkshire Hathaway (BRK.A +0.78%) (BRK.B +0.75%) CEO and 94-year-old generally regarded as the greatest investor of all time. Two aphorisms in particular stand out at the moment.
Image source: The Motley Fool.
Buffett on falling stock prices
There's no shortage of Buffett wisdom on value investing, but one quote sticks out right now. Discussing his contrarian approach to investing, Buffett once said, "If they buy a stock and they think if it goes up it's wonderful, and if it goes down it's bad -- we think just the opposite. When it goes down we love it, because we'll buy more."
What Buffett is saying might seem counterintuitive, but it makes sense. For net buyers of stocks, it's good for stock prices to go down, because it allows them to buy more shares for the same amount of money.
Ultimately, you are investing in a company. And if the long-term prospects and health of that business hasn't been damaged by the sell-off in question, then you're getting a better deal buying shares at a lower price.
Tesla CEO Elon Musk echoed this sentiment a few weeks ago when he implored Tesla employees not to sell their stock: "So, Tesla stock goes up, and it goes down. But, actually, it's still the same company." He said "It's just people's perception of the future" that changes.
In the case of tariffs, they're likely to have a near-term impact on many top stocks and on much of the American economy. But no one really knows the impact five years from now, and certainly not 10 years from now. We don't even know if the tariffs are here to stay.
If you're a long-term investor, stay focused on your time horizon. (You're not a day trader looking to make a quick buck.)
Buffett on buying American
Buffett has long been an advocate not just for capitalism and investing, but specifically for buying American stocks. In 2008, shortly after Lehman Brothers failed, he urged fellow investors in a New York Times op-ed to "Buy American. I am."
More recently, he told investors in his annual shareholder letter that "I have depended on the success of American businesses and I will continue to do so," and he added that Berkshire would always be invested in "mostly American equities."
While diversifying into international stocks isn't a bad idea at the moment, U.S. stocks have outperformed their global peers over time, and the U.S. has long been a dynamo of growth and innovation. Buffett has long insisted on betting on America, and he's unlikely to change his tune.
Enduring drawdowns and even crashes might be emotionally painful, but they do present opportunities to scoop up quality stocks on the cheap, and it's wise to take advantage of them. U.S. stocks have rebounded from much greater crises and gone on to set all-time highs.
Don't take it from me. Take it from Buffett, who has been invested through crises including the oil embargo, stagflation, Black Monday, the dot-com bust, 9/11, the great financial crisis, and the COVID-19 pandemic -- and is still winning with the same simple strategy.
