Financial market volatility is worsening as tensions around Ukraine have intensified. Right now I’m thinking of how Warren Buffett could be viewing events and adapting his investment strategy. A stock market crash isn’t here just yet but one could be just around the corner.
The FTSE 100 has dropped to one-month lows following Vladimir Putin’s vow to send Russian troops into Ukraine. Meanwhile the VIX (or so-called fear index) has jumped 7% on Tuesday morning to its highest since late January.
It’s clear that market confidence is eroding rapidly. But as a UK share investor myself I don’t plan on running for the hills. If stock markets crash, I’ll do what I think Warren Buffett would do and go on the offensive.
Is a stock market crash coming?
This isn’t because I have a mountain of cash that I can afford to lose. It’s also not because I’m a blind optimist. The Ukraine crisis — as well as being a human tragedy — could have significant and wide-ranging effects on the macroeconomic and geopolitical landscape and, by extension, on me as a UK share investor.
The crisis in Eastern Europe isn’t the only threat to share prices either. Other possible causes of a stock market crash include:
- Strong and sustained inflation. Prices are rising at their fastest rate for decades in many parts of the world. This is threatening to derail consumer spending levels.
- Sharp interest rate increases. Central banks are hiking interest rates rapidly to soothe these inflationary pressures. But this is causing borrowing costs to rise in another blow to the global economy. It also threatens share prices by making other investments like bonds more attractive.
- China’s rapidly-cooling economy. Chinese GDP is growing extremely slowly on account of weak domestic consumption. The country’s wobbling real estate sector could prompt a full-on economic crash too.
- A resurgence in Covid-19 cases. The pandemic is steadily easing in most regions, but the emergence of a fresh variant could cause a spike at any moment.
Thinking like Warren Buffett
Of course one or all of these dangers could have an impact on the UK shares I choose to buy. But as someone who invests with a long-term view, they’re not scuppering my plan to continue growing my stocks portfolio. History shows us that — even taking into account periods of extreme market volatility like this — shareholders tend to make an average annual return of 8% each year over a decade or more.
At times like these, I’m reminded of Warren Buffett’s comment that “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.”
It’ll take more than a little market volatility to dent my investment appetite. In fact I plan to get very active buying if another stock market crash occurs. By following Warren Buffett’s famous mantra to “be fearful when others are greedy, and greedy when others are fearful,” I might be able to pick up some brilliant shares at dirt-cheap prices.