What Warren Buffett Reads When Stocks Decline
The stock market has had a volatile year, and it’s not quite over yet. The S & P 500 is down 16.5% from its highs and is in correction territory.
I’ve been a professional investor for almost 30 years. One thing I’ve learned is that market declines, even as dramatic as this one, shouldn’t be cause for panic.
During times of volatility, seasoned investors stay calm and stick to the basics. For me that means hold onto my strong positions for the long term.
Warren Buffett has been the biggest influence in my investing career. I’ve read every annual report he has ever written.
In his 2017 Berkshire Hathaway shareholder letter he said that, during market downturns it paid to “heed these lines” from the classic 19th century Rudyard Kipling poem:
If you can keep your head when all about you are losing theirs…
If you can wait and not be tired of waiting…
If you can think – and not make thoughts your aim…
If you can trust yourself when all men doubt you…
Yours is the earth and everything that’s in it..
Market downturns are inevitable. Major declines have happened before and are going to happen again, he says: “No one can tell you when these will happen. The light can at any time go from green to red without pausing at yellow.”
Rather than watch the market closely and panic, keep a level head. Market downturns “offer extraordinary opportunities to those who are not handicapped by debt.”
“There is simply no telling how far stocks can fall in a short period,” writes Buffett. “Even if your borrowings are small and your positions aren’t immediately threatened by the plunging market, your mind may well become rattled by scary headlines and breathless commentary. And an unsettled mind will not make good decisions.”
An unsettled mind will not make any good decisions, indeed.
The Buck Stops Here
Behind the Markets