In his view, the long-term value of innovative American business would continue to grow, despite the short term pain of the crisis. Buffett warned against investing in “highly leveraged entities, or businesses in weak competitive positions,” but urged readers to see that the downturn provided an opportunity to buy strong companies at low prices.
“In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price,” Buffett explained in the op-ed. “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 now.”
That prediction turned out to be correct: In the 10 years since the fall of Lehman Brothers, the S&P 500 has increased by 130 percent. Companies like Apple and Amazon have soared to new heights, hitting trillion dollar valuations.
If you invested $1,000 in Apple in early August 2008, it would have been worth more than $9,222.50 as of August 2, 2018, or over nine times as much, including price appreciation and excluding dividends, according to CNBC calculations.
Buffett’s strategy wasn’t perfect — he admits his timing was a bit off on his October call to buy, as markets continued to plunge in 2009. “It was right on a long term basis,” Buffett told CNBC, “but it was way off for four or five months at least.”
Of course, it’s human nature to want to make investments when markets are going up, Buffett said Monday in an interview for CNBC’s documentary “Crisis on Wall Street: The Week That Shook the World.”
“People start being interested in something because it’s going up, not because they understand it or anything else,” Buffett said. “The guy next door, who they know is dumber than they are, is getting rich and they aren’t.”
But instead of acting on emotional instincts, Buffett’s advice is to follow that simple rule.
“Though markets are generally rational, they occasionally do crazy things,” Buffett wrote in his2018 shareholder letter. “Seizing the opportunities then offered does not require great intelligence, a degree in economics or a familiarity with Wall Street jargon such as alpha and beta.
“What investors then need instead is an ability to both disregard mob fears or enthusiasms and to focus on a few simple fundamentals. A willingness to look unimaginative for a sustained period — or even to look foolish — is also essential.”
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