The bear market is now in effect. The coming economic downturn has just arrived at our door. We naturally experience a little panic as the scenario grows more unsettling. Particularly if we are involved in the financial markets, the feelings run too deep. Whether as a seasoned financial stock trader or value investor. But, what investment rules that we need to follow during this bear market?
Fortunately for us, among all the individuals, there is a man by the name of Warren Buffett who is, hopefully, quietly calming himself and us. Most investors and traders are reminded by his maxim, known as “the Oracle of Omaha,” that maintaining composure is one of the keys to success in the financial markets.
Because a bull market has a way of making everyone forget about these fundamentals, Buffett jumps in to remind us of them while the market is sluggish. These are his three most well-known and simple investment rules from the 1970s, which we ought to cling to while we gasp for air at the edge of the bear market ocean.
1. Don’t Lose Money
The first rule of an investment is don’t lose money, and the second rule of an investment is don’t forget the first rule, according to Warren Buffett, who expressed this view in a 1985 episode of Adam Smith’s Money World.
Our hearts tend to beat quicker when a red candle, resembling blood, appears on the screen, especially during a bear market like the one we are currently experiencing. Following Buffett’s rule, we should always put our long-term interests first throughout this weak market. A dropping stock price does not necessarily mean we should sell it right immediately.
Recheck all the figures, ratios, and firm earnings using our long-term investing criteria. Only if the stock’s core fundamentals and intrinsic value are failing may you sell it for a loss.
For as long as you’re comfortable with the holding, Warren Buffett continued in his most recent newsletter in 2020: “You’ve got to be prepared when you acquire a company for it to fall down 50% or even more and still be comfortable with it.”
As we can see, many great companies have suffered losses of more than 50% during this bear market, and the last thing we should do is sell the stocks.
2. Be Greedy when the Market is Fearful, Be Fearful when the Market is Greedy
Buffett advises investors to “be fearful when others are greedy, and greedy when others are fearful.” This adage has become famous since it was mentioned in the Berkshire Hathaway Chairman’s Letter in 1986. The popular quote could not be more accurate in reassuring us during this bear market.
His remark was in reference to financial markets, which operate based on human sentiment and emotions. Now is the best time for us to follow those great companies that have low prices and offer large discounts to us. It appears impossible to obtain the same discount during bull markets.
As other investors are fearful during this bear market, we shouldn’t follow the mass, keep calm and avoid panic sell. Highly likely this is the best time for us to get greedy shopping for our favorite investments.
3. Find Value in the Chaos
Rather than we keep checking the falling price and screenshot the blood red boxes of stocks, how about we follow Warren Buffett and keep digging any valuable stocks in the hay of the bear markets now.
If we love a stock at its price of $200, why shouldn’t we love them when its price at $120 right? Of course, it is easier said than done, since we don’t know how low the stock can go and how bottom can we dive. But by valuing their current value now and wait patiently until it is confirmed to be entered, we don’t need to rush in checking the price everyday.
Again, Buffett said, “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.” This is the time we find the values and grab the opportunities before it goes back up again.
Conclusion
Warren Buffets is one of the best investors of all-time. He indeed a genius when comes to value investing and definitely one of a kind that can work against the gigantic economic cults. He comfortably goes against the crowd and being able to float in the current panic mode without being panic at all. To be smart with money you must follow the smart one.
