Did You Hear Buffett’s Advice In October 2008?

Back on October 16, 2008, CEO, chairman and value investor Warren Buffett wrote an op-ed piece that was published in the New York Times. The piece was titled “Buy American. I am.”

This op-ed piece first appeared in print on October 17 of the same year, right during the height of the financial crisis. Stock prices were swinging wildly from day to day, and the market was plummeting.

As a matter of fact, on the day Warren Buffett wrote the piece, on October 16, the S&P 500 swung 4% from the lowest value to the highest value in that single day. The S&P opened at 909, dropped to 865 and then surged in value to 947 before it closed at 946. The Dow Jones had a very similar volatile day. At its height, it traded at 9013 and then closed at 8979. That is a 5% swing during the day.

Even in the middle of all of the noise and scary volatility, Warren Buffett urged people to stay calm.

He wrote:

“The financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So… I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100% in United States equities.

Why?

A simple rule dictates my buying: be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. 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 the most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: 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 in 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.”

Warren Buffett predicted his buying movement a little bit too early. The stock markets actually hit their bottom on March 9, 2009.

But if you paid attention to the market close on the date of his op-ed piece, which was October 17, 2008, to yesterday’s close on February 12, 2013, and you followed his advice and bought the S&P 500 and the Dow, you would currently be up 61.6% in the S&P and 58.4% in the Dow Jones.

Did you take Warren Buffett’s advice and buy as many stocks as you could during those dark days in 2008 and 2009?

Did you learn anything about your own risk tolerance during the Great Recession?

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