I’ve just seen a headline that read: “£50bn wiped off UK stock market.” The Footsie has been falling, and apparently there’s a rout going on. Over in the US, the S&P 500 had lost 4% the previous day. And that was its biggest fall since… when was it?
With a reaction this dramatic, is it the worst rout since the Second World War? Since the Great Depression? Oh, no, it’s since June 2020. Less than two years ago. So how badly has the FTSE 100 slumped?
By market close Thursday, the Footsie had fallen 135 points, or 1.8%. Over the course of two days, it lost 2.9%. That took it down to its lowest level since… oh, a week ago.
It does look like there’s a bit of panic gripping the headline writers here. So what’s the best thing for private investors to do at times like this? I reckon listening to some of the most successful investors of all time might be a good idea.
Fear and greed
Billionaire investor Warren Buffett is on a big buying spree at Berkshire Hathaway. Over the first quarter of the year, Berkshire has ploughed around $50bn into stocks. That includes a new $2.6bn stake in Citigroup.
When Buffett invests, he invests big. We shouldn’t be surprised, as he did coin one of the most famous phrases in investing history. In his 1986 letter to shareholders, he said that “we simply attempt to be fearful when others are greedy and to be greedy only when others are fearful“.
Many investors know that one. But how many are aware of what preceded the famous line? Buffett had pointed out that stock markets will be hit by occasional outbreaks of both fear and greed. He said: “And the market aberrations produced by them will be equally unpredictable, both as to duration and degree. Therefore, we never try to anticipate the arrival or departure of either disease.”
So never worry about trying to guess when fear or greed will hit the market… just take advantage of fear when it happens. That’s the message I take from it.
Market bell
John ‘Jack’ Bogle, credited with creating the world’s first index fund, had a similar thought on market timing.
He said: “The idea that a bell rings to signal when to get into or out of the stock market is simply not credible. After nearly 50 years in this business, I don’t know anybody who has done it successfully and consistently. I don’t even know anybody who knows anybody who has.”
So, after a couple of days of financial headline writers getting over-excited, what am I going to do based on where the Footsie might go tomorrow?
Well, If nobody Jack Bogle knew had any idea how to time the market, I’m sure I don’t. And if Warren Buffett reckons that market aberrations are unpredictable, I won’t try to second guess next week’s punters.
Keep calm
No, I simply intend to stay calm, and take advantage of market falls when they come along. In short, I will try to emulate Warren Buffett and buy cheap shares.
Now, I’m sure I had a spare $50bn lying around somewhere…