In the ever-changing stock market, investment masters who embody immortal legends have also encountered setbacks. What kind of mentality should they maintain during a sharp decline? The media has sorted out the strategies and valuable suggestions of masters in dealing with stock market crashes, hoping to provide some inspiration for investors.
Buffett: Stock prices will eventually reflect the intrinsic value of a company
99% of Warren Buffett's wealth comes from the value of his publicly traded company, Berkshire Hathaway, which he controls. Therefore, in the event of a widespread stock market crash, Buffett's Berkshire Hathaway stock is likely to be affected. So, how did Buffett react during the 1987 US stock market crash?
According to foreign media reports, during the crash, Buffett may have been the only person in the entire United States who did not always pay attention to the collapsing stock market. Buffett doesn't have a computer or a stock market machine in his office, he doesn't even look at stock market trends. For the whole day, he stayed quietly in the office as usual, making phone calls, reading newspapers, and reading annual reports of listed companies. Two days later, a reporter asked Buffett: What does this stock market crash mean? Buffett's answer is only one sentence: perhaps it means that the stock market has risen too high in the past.
Buffett did not panic and inquire about news, nor did he panic and sell stocks. Faced with a sharp decline, a significant reduction in his wealth, and a sharp drop in his holdings of heavy stocks, he remained very calm. The reason is simple: I firmly believe that the listed companies I hold have long-term and sustained competitive advantages, good development prospects, and high investment value. I firmly believe that stock market crashes, like natural disasters, are only temporary and will eventually pass and return to normal. The stock prices of the companies I hold will ultimately reflect their intrinsic value.
Peter Lynch: The crash is a great opportunity to make big money
When the US stock market crashed in 1987, many people went from millionaires to extreme poverty, suffered mental breakdowns, and even committed suicide. At that time, Peter Lynch, a superstar in the American securities industry, managed a Magellan Fund worth over $10 billion. Within a day, the fund's net asset value lost 18%, resulting in a loss of up to $2 billion. Like all open-end fund managers, Lynch has only one choice: to sell stocks. In order to cope with the unusually large redemption, Lynch had to sell all his stocks.
After more than a year, Peter Lynch still felt scared when he recalled, "At that moment, I really couldn't be sure if it was the end of the world, or if we were about to fall into a severe economic depression, or if things hadn't gotten that bad yet, just that Wall Street was about to end
Afterwards, Peter Lynch continued to experience many stock market crashes, but still achieved very successful performance. It put forward three suggestions: firstly, do not sell all stocks at a low price due to panic. If you sell stocks in despair during a stock market crash, your selling price is often very low. The market situation in October 1987 was frightening and unsettling, but there was no need to sell stocks on that day or the next. The stock market began to steadily rise in November of that year. By June 1988, the market had rebounded by over 400 points, which means the increase exceeded 23%. Secondly, one must have firm courage in holding good company stocks. Thirdly, one should have the courage to buy stocks of good companies at low prices. A sharp drop is the best opportunity to make big money: huge wealth often only has a chance to be earned in such a stock market crash.
Philip Fisher: Don't buy unfamiliar stocks too quickly
The choice of investment timing is very difficult. When investors are unsure of the timing, they choose hedging. Roughly estimated, 65% to 68% of the funds of American investment guru Philip Fisher will be invested in the four stocks he truly values, while the remaining 20% to 25% will be in cash or cash equivalents, and the remaining funds will be invested in the five promising stocks. Fisher will spend a lot of time researching and is not in a hurry to buy. In a continuously declining market environment, do not buy unfamiliar stocks too quickly
Jim Rogers: Buy it for what it's worth, sell it crazily
Wall Street investment guru Jim Rogers once pointed out that one should patiently wait for the right opportunity, make money and take profits, and then wait for the next chance. Only in this way can we defeat others. The market trend often presents a long-term slump, and in order to avoid sinking funds into a stagnant market, investors should wait for catalytic factors that can change the market trend to appear. Buy it for what it's worth, sell it crazily.
Jeremy Granson: Investors need to be patient and wait for good cards
Jeremy Granson, the world's best investment strategist, suggests that one must believe in history. History will keep repeating itself, and forgetting this will put you in a dangerous situation. All foam will burst, and all investment madness will disappear. The task of investors is to survive in market fluctuations.
Secondly, do not be a borrower or a lender. If investors borrow money to invest, it will interfere with their investment ability. A portfolio that does not use leverage will not be liquidated, while investments that use leverage will face this risk. Leverage can damage investors' own patience. Although it may temporarily increase investors' returns, it will eventually be suddenly destroyed by it.
Thirdly, do not put all assets in one boat. Allocate investments in several different fields, and try to have as many as possible, which can increase the resilience of the investment portfolio and enhance its ability to withstand shocks. Obviously, when there are numerous and diverse investment targets, investors are more likely to survive during critical periods when their main assets are declining.
The fourth is to have patience and focus on the long-term. Investors need to be patient and wait for good cards. If the waiting time is long enough, the market price may become very cheap, which is the safety margin for investors to invest.
Number five is to stay away from crowds and only focus on value. The best way to resist crowd agitation is to focus on the intrinsic value of the stocks you have calculated, or find a reliable source of value measurement (check their calculation results from time to time). Then worship these values as if they were heroes, and try to ignore everything. Remember, those great opportunities for investors to avoid grief and make money are very obvious from the figure: compared with the long-term average price earnings ratio of 15 times of the U.S. stock market, the price earnings ratio was 21 times when the market peaked in 1929, and the price earnings ratio of the S&P 500 was 35 times when the Internet foam peaked in 2000! On the contrary, at the low point of the stock market in 1982, the price to earnings ratio was 8 times. This is not complicated.
Six is to be true to oneself. As an individual investor, one must understand their strengths and weaknesses. If you can patiently wait and ignore the temptation of the group, you are likely to win. Investors must precisely know their tolerance threshold. If investors cannot resist temptation, they will never manage their money well.
