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 12-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.”
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 March 16, 2020. 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.
Speak with your advisor today about how you can put this principle into practice to meet your long-term financial goals.