5 Warren Buffett Principles When the Stock Market Slumps

KOMPAS.com – Stock market volatility often triggers panic among investors. When prices fall sharply in a short period, many market participants rush to sell shares to avoid larger losses.

In fact, throughout history, global stock markets have repeatedly faced crises, recessions, and sharp corrections. Yet over the long term, markets have also shown the ability to recover and generate significant value growth.

This is the perspective of the legendary investor Warren Buffett. Over more than six decades of investing, he has faced various market shocks, from the oil crisis, the 1987 crash, the 2008 financial crisis, to the global pandemic of 2020.

These principles emphasise calm, a focus on fundamental business performance, and readiness to seize opportunities when share prices are discounted.

The first principle Warren Buffett stresses is to keep calm. He asserts that the stock market is designed to move money from impatient investors to those who are patient.

Historical data reinforces this view. The long-term performance of the S&P 500 shows that, although repeatedly hit by crises and recessions, a US$100 investment in 1928 is now worth close to US$1 million thanks to the power of compounding over the long term.

To Warren Buffett, short-term volatility is not a reason to walk away from the market.

This principle was evident during the global financial crisis of 2008. When banking shares plunged, Buffett instead ploughed US$5 billion into Goldman Sachs.

That investment generated more than US$3 billion in profit for Berkshire Hathaway through high dividends and stock warrants.

Citing Yahoo Finance, Buffett emphasises the importance of focusing on the quality of the business, rather than daily price fluctuations. He often asks whether a price decline actually changes demand for the company’s products or services.

This approach was reflected when Berkshire bought The Washington Post in 1973 amid a falling market. The US$10.6 million investment grew to more than US$200 million by 1985, rising by nearly 1,900 per cent.

Another example is the investment in Coca-Cola after Black Monday in 1987. In 1988, Buffett poured in around US$1.3 billion when the stock price was depressed. Today its value is almost US$28 billion, not counting about US$11.7 billion in dividends.