10 Lessons of Sanity From Warren Buffett During Insane Markets

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Investors have had their first real taste of volatility and pain in 2018. The bull market is now right at nine years old, and by the end of January it had been almost two years since the stock market had even seen a 5% market correction. That all changed during the first full week of February, when the stock market went from a 5% sell-off down to a 10% sell-off in a matter of hours. This rapid price action blindsided many investors, and now some are understandably rethinking how they should be positioned ahead.

Periods of uncertainty can turn into periods of panic. The markets just demonstrated that. Investors have seen that markets go up, but they have to remember that the markets also go down and that certain market corrections are both necessary and can bring opportunities. The whole notion that markets can go down seems to have been forgotten about because the market was only going up and up every week for so long. It’s during times like this that investors have to think rationally and with purpose about their investing strategies. Perhaps this is when it would be a good time to think of some investing strategies that Warren Buffett would employ.

The public and investors alike seem to love and cherish Buffett. He has a cult following at the Berkshire Hathaway Inc. (NYSE: BRK-A) annual meeting that the Berkshire holders call “Stockpalooza.” And Buffett is called the “Oracle of Omaha.” And even for Buffett’s critics, everyone can probably agree that having become the world’s richest man almost certainly implies that Buffett knows a thing or two about business and investing.

24/7 Wall St. has tracked many topics and trends about Buffett over the years. We have tracked the major changes in his portfolio of stocks, we have tracked his many acquisitions and we have watched many of his interviews and actions he has taken over the years. It turns out that Buffett has a plethora of actionable methods and theories that the Average Joe investor can use in good times — and in hard times. And most people would admit that they think they are investment gurus on the way up and that they “didn’t get enough help” from others on the way down. Since human nature is hard to avoid, why wouldn’t investors flock to the practices of one of the greatest human investors ever?

When it comes to extreme buying and extreme selling, Buffett is known for saying “Be fearful when others are greedy, and be greedy when others are fearful.” This message about not always following the crowd should be clear enough, but there are so many other rules and generalities that Buffett employs that it can be hard for the average investor to keep up.

Investors have to keep in mind that many of the great business climate changes are only just now taking hold, even if the financial prices of their shares might have built in a lot of good news. Corporate tax reform was explained by Buffett as a chance for companies to keep almost 80 cents of every dollar they earn after taxes rather than paying out more than one-third of every dollar they earn in taxes. Buffett recently said he would have created a different tax plan, but he also admitted that he and the bulk of corporate America will benefit greatly from tax reform. And there are lower regulations to consider as well.

The following are not in any particular order, but here are 10 lessons of sanity for investors to always consider when markets begin to act less than sane.

1. Employing Rules-Based Investing Strategies

It’s always important for investors to consider what a company has for leadership, how defensible its business moat is and how profitable a company is. Jefferies once outlined the 13 point checklist that Buffett’s investments and acquisitions fit within. 24/7 Wall St. has even outlined 10 strategies for common investors to invest like Buffett using a mindful long-term view with a simple and straightforward approach.

Buffett might not always follow his own rules to the tee, but he seems to end up being right more often than not. Maybe using rules-based investing decisions should be a good start investing sanely during periods of insanity in the markets.