The ASX, as well as stock markets around the world, have had a rough time of it lately. Despite the bounce that we've seen today, the S&P/ASX 200 Index (ASX: JXO) remains down by around 3.5% over the past month and by a meaty 5.4% since 7 March.
It's been a similar, albeit not quite so severe, experience for the S&P 500 Index (SP: .INX) in the United States.
So most of us would have seen our share portfolios take a bit of a battering over the past few weeks.
This is an uncomfortable situation for most investors to deal with. No one likes seeing the value of their investments tank. But times like these can often spook investors into making poor decisions. Selling out of your investments during times of market trauma can be tempting.
You might think that it's better to 'go to cash' until the market starts going up again. But this is usually a bad decision, one driven by emotion, not logic.
So I think a better way to handle volatility in the share markets is by following the advice of legendary investor Warren Buffett.
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Some investing wisdom from Warren Buffett
Buffett is famous for his astronomical returns over more than six decades of investing and the generous investing wisdom he periodically shares with investors.
When markets fall, Buffett's advice is constant and unwavering. Put simply, he welcomes any market downturns, viewing them as a good chance to buy his favourite shares at a discounted price.
Our first quote illustrating this principle comes from Buffett's 2008 letter to the shareholders of his company Berkshire Hathaway Inc. Here's what Buffett said:
…the market value of the bonds and stocks that we continue to hold suffered a significant decline along with the general market. This does not bother Charlie and me.
Indeed, we enjoy such price declines if we have funds available to increase our positions. Long ago, Ben Graham taught me that "Price is what you pay; value is what you get." Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down.
So that gives you a great idea of how one of the best investors in the world deals with falling share markets. Once you have utter confidence in the companies you've selected for your share portfolio, it should be easy to accept the lower share prices that shaky markets bring with them.
Be greedy when others are fearful
To build out a better picture of Buffett's ideas, let's look to more wisdom from the great man. Buffett penned an op-ed for The New York Times back in the depths of the global financial crisis in 2008. It still makes for some pertinent reading today. Here's a piece of it:
The financial world is a mess, both in the United States and abroad… In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary. So … I've been buying American stocks.
Why?
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions..
But most major companies will be setting new profit records 5, 10 and 20 years from now. Let me be clear on one point: I can't predict the short-term movements of the stock market…
What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.
Foolish takeaway…
In my view, that is some of the best and most eloquent advice for dealing with share market fear any of us will ever get. So today is the time to keep this priceless wisdom front of mind.
If the share market gets even worse in the coming weeks and months, remember what Buffett says about investing during these times. This legendary investors portfolio has survived and thrived during some of the darkest days the markets have ever seen. Yours can, too, if you learn from the best.
