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3 pieces of Warren Buffett advice for dealing with a stock market crash

Fans of Warren Buffett taking his photo

Are we likely to face a stock market crash in the next 12 months? The FTSE 100 has remained resilient so far, and inflation in August was less than expected. But if a crash comes, what would billionaire investor Warren Buffett advise?

I mean, there are fears that inflation will climb above 10% in September, and interest rates are rising again. This means we have less spending power, and borrowing costs are climbing.

So I’m definitely keeping the possibility of a new crash at the back of my thoughts. Or, at least, a weak 12 months or more for shares.

Switching off

Today I’m looking at three pieces of Warren Buffett advice, which I think are especially relevant when we’re concerned about a stock market crash. The first one is a commonly repeated quote, which is perhaps sometimes offered a little glibly.

Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

I do agree, totally. And if the stock market was going to close tomorrow for 10 years, that would immediately crystallise the shares I want to buy today.

But I find it quite tough to just pretend the market is closed for a decade. Yes, I should just ignore short-term share prices. But I can’t completely switch off the emotion when I see shares I own crash.

Still, it’s a great approach, and the closer we can get to it, the more easily I think we can deal with market downturns.

Raining gold

I love this next one. Speaking of stock market slumps, in his 2016 letter to Berkshire Hathaway shareholders, Buffett said:

Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons.

He means that stock market slides are not to be feared, they’re to be welcomed and approached with open arms — he’s also suggested being “fearful when others are greedy” and “greedy when others are fearful“.

A stock market crash is a time of cheap shares. And we should use the opportunity to shovel up as many as we can while they’re down.

Inflation raging

Here’s another, suggesting something similar:

In the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank… In short, bad news is an investor’s best friend.”

Inflation raging, economy in the tank? Sound familiar? Buffett wrote it in a New York Times article back in 2008.

UK inflation hit 18% in 1980, at a time when energy prices were climbing. It was possibly the toughest recession since World War II. But by the end of 1989, Warren Buffett had had one of his best investing decades ever.

Be Foolish

Here at the Motley Fool we like the Warren Buffett approach. That’s why I invest for the long term, and I use stock market crashes as opportunities to buy cheap shares. And I try to keep my short-term emotions in check.

The post 3 pieces of Warren Buffett advice for dealing with a stock market crash appeared first on The Motley Fool UK.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.