Investing in the stock market has been a roller-coaster ride of late.
The S&P 500 shed 2.4% on Monday as investors digested President Donald Trump’s latest round of attacks on Federal Reserve Chair Jerome Powell, which have included talks of his “termination” should the central bank fail to lower interest rates.
Powell’s dismissal would be unprecedented and, according to Powell, impermissible under current law.
On Tuesday, stock prices bounced more than 1.5% in early trading. All told, as of Tuesday afternoon the broad U.S. stock market is down about 14.5% from its February high.
Given the administration’s capricious approach to economic policy, experts warn to expect continued turbulence.
“We’re really thinking about this as a bit of an endless environment in terms of direction … and that’s in particular because we just don’t know where tariffs end up,” Robert Haworth, senior investment strategist at U.S. Bank, told CNBC. “This is a market trying to get clarity on direction, and not getting a lot of conclusions.”
It can be hard to know what to do amid topsy-turvy times in the market. That’s why Berkshire Hathaway chairman and investing legend Warren Buffett generally sticks to a straightforward guideline.
“A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful,” Buffett wrote in an op-ed for the New York Times in 2008, amid the mania of the global financial crisis, explaining why he was continuing to buy U.S. stocks through the downturn.
Capitalize on fear to build wealth
On Monday, investors were fearful that the current administration could undermine the Federal Reserve, which is charged with keeping inflation in check and preventing the economy from sliding into recession. Add to that overarching fears that Trump’s steep tariff policies could disrupt supply chains, reignite inflation and stoke the flames of trade wars that could slow the global economy.
Over the short term, these are all valid fears, and if you’re in a situation where you need to live on income from your investments — say, if you’ve recently retired — it’s worth discussing these potential outcomes with your financial advisor.
For Buffett, however, investing is a long game, played over the course of decades. If you have goals that are decades away, following his philosophy is simple. When other investors’ fears drive stock prices down, continue to invest in a broadly diversified portfolio at bargain prices.
Historically, Buffett’s strategy has worked thanks to the long-term upward trajectory of U.S. businesses. The forces that drive markets downward, he pointed out in 2008, are often temporary.
“Fears regarding the long-term prosperity of the nation’s many sound companies make no sense,” he wrote. “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 now.”
At the nadir of the 2007 to 2009 bear market, the S&P 500 had suffered losses of more than 50%. Investors were panicking and selling their stocks out of fear that things could get even worse. So Buffett got greedy and shifted his bond-heavy personal portfolio into U.S. stocks.
Sure enough, over time U.S. businesses returned to profitability, and stocks climbed to new highs.
To be clear, investors aren’t panicking yet. But if things get worse from here, those following Buffett’s strategy would continue to steadily buy U.S. stocks — even if headlines begin turning dire. After all, investors have been here before, and eventually prospered.
“Over the long term, the stock market news will be good,” Buffett wrote in 2008. “In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”
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