For a man who has written at great length about stock market investing, it’s no surprise Warren Buffett has built up a lengthy list of famous quotes. One of my favourites is: “I buy on the assumption that they could close the market the next day and not reopen it for five years.”
But the wisest advice is often the toughest to follow. How many among us actually kept cool heads throughout the Covid-19 market crash? Were you able to calmly think “It doesn’t matter, I expect all will be fine in five years” and not be the least bit concerned? Well, at least I tried to.
I have succeeded in following Buffett’s advice to some extent. In January, I thought I’d see how long I can go without looking at the value of my Stocks and Shares ISA. And I’ve succeeded so far – I haven’t peeked even once. Now, sure, it’s a lot easier to do that when markets are recovering. It’s a different story when share prices are plummeting, as they were in early 2020.
Should I sell or buy?
Still, even throughout 2020, I avoided panic, and I didn’t sell a single share. I was a buyer of stocks in 2020. I didn’t try to time things, and I wasn’t going by ups and downs in the FTSE 100. No, the timing of my investments has been driven by only one thing. When I have a sum to invest, that’s when I buy shares.
But what if we had been able, as Warren Buffett suggests, to treat February 2020 as market close and keep clear until the pandemic was over? Well, it’s not quite over yet. But the FTSE 100 has already broken back above the 7,000 level. London’s top index reached 7,037 points on Friday. It’s a little below 7,000 on Tuesday as I write, but not by much.
And look back to pre-pandemic days. Since February 2020, just before the crisis hit, the FTSE 100 is only down 6%. That kind of fluctuation happens all the time, even when there are no catastrophes happening. And the FTSE 250? That took a harder hammering in the early days of the crash, but it’s now up 2.7% over the same timescale.
The Warren Buffett way
Suppose that, instead of panicking along with the market, you immediately started buying shares. If you’d been fortunate with your timing and managed to buy in at the bottom, you’d now be 34% up with the FTSE 100. And an investment in a FTSE 250 tracker would see you 65% ahead.
I’d never try to engage in market timing. I’m no good at it, and I’ve never met anyone who is. But by keeping Buffett’s wise words in mind, I’ve managed to sit out the great 2020 stock market crash with minimal losses.
And by keeping on buying through the down spell, I’ve even picked up a few shares at knock-down prices as a bonus. And I still haven’t checked my portfolio valuation this year.