As you may know, I’ve always been a big fan of Warren Buffett and have quoted his sage advice and wisdom frequently throughout the years. Buffett’s success as an investor is well known, and investors are generally wise to heed his advice and follow his example.
At the time of this writing Monday morning, March 9, financial markets appear to be in the midst of a global panic related to fears of the spreading coronavirus and concern about its economic impact. The level of fear is palpable, and markets and related investor behavior seem less than rational at this time. Although the merits of the note I recently distributed about market events as they relate to your financial plan remain equally sound this morning, I believe now would be an opportune time to reflect upon the words of Warren Buffett during a similar period of heightened market stress and anxiety.
In October 2008, during the midst of the Great Recession, financial markets were in the midst of comparable turbulence. It was about as ugly as it gets. Sentiment was downcast, and the near-term outlook grim. It was then that Buffett penned his now legendary New York Times editorial, “Buy American, I Am” in which he wrote about how fear was widespread and gripping even seasoned investors. “Let me be clear about one point,” he intoned. “I can’t predict the short-term movements of the stock market. 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 up. So if you wait for the robins, spring will be over.”
Looking back upon his editorial now, it seems quite prescient. Just one year after Warren Buffett’s famous editorial, the Dow was substantially higher. When he wrote, “people who hold cash equivalents feel comfortable. They shouldn’t,” it was as if he predicted better times ahead at the precise time that the market bottomed. Yet Buffett wrote this piece on October 16, 2008 when the Dow was at 8,979. It subsequently dropped another 27% until the Dow ultimately bottomed at 6,547 on March 9, 2009 – exactly 11 years ago to this very day. On October 16, 2009 it closed at 9,996. Today, despite its recent precipitous drop, it is over 24,000.
As Buffett also infamously stated, the key to successful long-term investing is to “be fearful when others are greedy and be greedy when others are fearful.” It’s obviously apparent that investors are presently fearful, and many are indiscriminately selling portfolio assets without regard to quality nor with the broader long-term picture in mind. Yet for every investor who sells in the midst of such panic, another investor buys from them. Successful long-term investors like Warren Buffett are likely among those who are buying. If history is any guide, which I believe it is, patient and disciplined investors are apt to be rewarded by remaining undeterred by the irrational madness of crowds.
In the midst of a global panic, investors have a choice whether or not to participate. I choose not to. Like Buffett, I remain optimistic as to the future of markets and our country. Throughout its history, America has confronted countless challenges of equal severity and emerged victorious each and every time. The challenge of the COV-19 virus will be no different. There will ultimately be a time beyond the “time of the coronavirus.” Markets and the economy will eventually recover, and our country will emerge even stronger than before. Spring is around the corner... and yes, the robins will return.
-Kevin Smith and Smith Wealth Advisory Group