Warren Buffett isn't called the "Oracle of Omaha" for nothing. The legendary investor didn't know when the stock market crash would come. However, he seems to have sensed that one was on the way.
You might even say that Buffett was warning Wall Street. He amassed the largest cash stockpile in Berkshire Hathaway's history. He has been a net seller of stocks for nine consecutive quarters. And he even posed a critical question about the impact of tariffs (the reason behind the huge market sell-off), asking in a recent interview, "And then what?"
I don't think there's any question that Buffett's warning has been validated. But what does he think investors should do now? Based on his past statements, I think he'd recommend investors do four specific things.
Image source: The Motley Fool.
1. Be calm.
Buffett once identified temperament as "the most important quality for an investor." What kind of temperament did he have in mind? It wasn't rash and panicky.
He has never let short-term market fluctuations affect his decision-making. Buffett would almost certainly urge investors to be calm during the current market meltdown.
But how can you remain calm? In his 2013 letter to Berkshire Hathaway shareholders, Buffett wrote, "Games are won by players who focus on the playing field– not by those whose eyes are glued to the scoreboard." That's a great perspective to have right now. In this analogy, the scoreboard represents stock prices while the playing field represents the businesses in which you're invested. If the businesses are strong, you'll be fine over the long run.
2. Be patient.
Buffett is often quoted as saying, "The stock market is a device for transferring money from the impatient to the patient." That statement is 100% correct. Smart investors will therefore be patient rather than making rash decisions.
Importantly, Buffett hasn't sold all of the stocks in Berkshire Hathaway's portfolio even though he cut back on investing and built a huge cash position. He knows that if he waits long enough, the stocks of great companies should perform well.
3. Be greedy.
Perhaps the most famous quote ever from Buffett is this one from his 1986 letter to Berkshire Hathaway shareholders: "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." Investors are unmistakably fearful right now. The CBOE Volatility Index (^VIX +3.23%), sometimes referred to as the "fear gauge," is skyrocketing.
It's time -- or at least getting close to time -- for investors to be greedy. The way to be greedy is to buy stocks while others are blindly selling. As Buffett told Berkshire shareholders in 2010, "Big opportunities come infrequently. When it's raining gold, reach for a bucket, not a thimble."
4. Be discerning.
Being greedy doesn't mean buying just any stock that has fallen. Buffett would also advise investors to be discerning in which stocks they purchase.
I especially like Buffett's recommendation to "buy a stock the way you would buy a house." He added, "Understand and like it such that you'd be content to own it in the absence of any market."
In a 1974 interview with Fortune magazine, Buffett used a baseball analogy. He said, "The stock market is a no-called-strike game. You don't have to swing at everything -- you can wait for your pitch." That's a great way to think about the stocks you buy.
This discernment doesn't only apply to which stocks you buy; it also applies to when you buy them. As a case in point, Berkshire Hathaway is unquestionably Buffett's favorite stock. However, in the fourth quarter of 2024, he didn't approve a stock buyback for the conglomerate for the first time in several years. Buffett only authorizes repurchasing shares when Berkshire stock is trading below what he thinks its intrinsic value is. His His holding off on stock buybacks in Q4 is a textbook example of discernment in action.
