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On October 16, 2008, in the midst of the global financial crisis, Warren Buffett penned an op-ed in the New York Times titled – “Buy American. I am.” At the time, U.S. equity markets were down roughly 30% amidst widespread market fear and investors were in dire need of inspiration.

Despite almost 14-years passing, the bulk of what Buffett wrote back then still applies directly to investors today. With that in mind, let’s revisit some of the timeless wisdom from the Oracle of Omaha:

  • On fear. “Fear is now widespread, gripping even seasoned investors. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10, and 20 years from ”
  • On where things are headed. “I haven’t the faintest idea as to whether stocks will be higher or lower a month, or a year, from now. What is likely however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns ”
  • On investor behaviour. “In the 20th century… the Dow rose from 66 to 11,497. You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.”

How did things work out for Mr. Buffett?

Over the short-term, things didn’t go so well. From the day Buffett announced his intentions to the American public, his purchases would get pummeled. In fact, the S&P 500 would go on to drop another 20% before bottoming. That said, this didn’t cause Buffett to flinch as he knew he couldn’t predict short-term market movements.

For many, Buffett’s advice provided the framework required to see across the valley during the worst storm to hit markets since the Great Depression. And, by putting money to work when others were fearful, investors who followed his wisdom are certainly singing his praises today.

What buying low looks like in practice

what buying low looks like in practice


Source: RBC GAM, Bloomberg, Morningstar. Buffett’s cumulative return is S&P 500 TR CAD from October 16, 2008 to January 31, 2022. An investment cannot be made directly into an index. The graph does not reflect transaction costs, investment management fees or taxes. If such costs and fees were reflected, returns would be lower. Past performance is not a guarantee of future results.

While we are often quick to simplify the key to investment success with the popular adage buy low, sell high – what these words look like in practice is often overlooked. Buying low doesn’t mean investing at the bottom. If it did, we’d all be in trouble. Even the best investor of our generation couldn’t get that right.

Rather, in practice, it often plays out as follows. You buy and the market goes down. Then you buy some more and it may go down even further. However, as a long-term investor, your time horizon is sufficient enough that one day, down the road, you’re in position to sell high. That’s the Warren Buffett way.

When markets move, you may wonder if it’s time to buy or sell investments. Investor bias can impact these decisions. A financial advisor can help you make choices that will support your long-term goals and plans.

Disclosure

This has been provided by RBC Global Asset Management Inc. (RBC GAM) and is for informational purposes, as of the date noted only. It is not intended to provide legal, accounting, tax, investment, financial or other advice and such information should not be relied upon for providing such advice. RBC GAM takes reasonable steps to provide up-to-date, accurate and reliable information, and believes the information to be so when provided. Past performance is no guarantee of future results. Interest rates, market conditions, tax rulings and other investment factors are subject to rapid change which may materially impact analysis that is included in this document. You should consult with your advisor before taking any action based upon the information contained in this document.

Information obtained from third parties is believed to be reliable but RBC GAM and its affiliates assume no responsibility for any errors or omissions or for any loss or damage suffered. RBC GAM reserves the right at any time and without notice to change, amend or cease publication of the information.

This document may contain forward-looking statements about a fund or general economic factors which are not guarantees of future performance. Forward-looking statements involve inherent risk and uncertainties, so it is possible that predictions, forecasts, projections and other forward-looking statements will not be achieved. We caution you not to place undue reliance on these statements as a number of important factors could cause actual events or results to differ materially from those expressed or implied in any forward-looking statement. All opinions in forward-looking statements are subject to change without notice and are provided in good faith but without legal responsibility.

Article updated: March 11, 2022