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Warren Buffett: Buying More Stocks Amid Turmoil

There’s no doubt that the stock market has been a bit turbulent these past few days. After days when the stock market tumbles, the financial news media claims the double dip recession is here, and after days when the Dow and S&P shoot back up, stories point to the rally in 2008 that took place right after the biggest drop as a comparison.

This type of volatility is sure to scare investors away from stocks. Wise advisers have warned that if you can’t handle these day-to-day swings without loosing sleep at night, you shouldn’t be invested in stocks in the first place. It’s the risk of these swings that helps stocks earn long-term impressive returns compared to inflation.

If you’re losing sleep and have come to the realization that your risk tolerance is lower than you thought it was when the market was soaring high, your gut reaction is to get out of risky stocks and invest in bonds or nothing at all. Then after growth in stocks seems to be accelerating again, jump back on the bus (usually when it’s too late to take advantage). The long-term returns of the stock market relies on being invested at the lows, so selling low and buying high will ensure your investments will never perform at the advertised long-term returns.

Warren Buffett is buying more stocks right now, according to an interview with Fortune magazine. To run scared from a volatile market is not a good way to grow your wealth. Rather than come to the realization that you’ve overestimated your tolerance for risk, investors should embrace this time as an opportunity.

Losing sleep over day-to-day stock performance is not a result of a low risk tolerance that signals stocks are not the right investments. Stocks are the right investments, and people have to realize that this volatility is part of investing. If you run away, you lose. If you’re losing sleep, start viewing declines as an opportunity to double down and buy into the stock market when you can.

As people age, however, this volatility does become much more important. A stock market crash at the same time you need your money can undo many years of great performance. For this reason, it might make sense to gradually decrease exposure to stocks as you get older, but not too much. Even at the typical retirement age, you’ll still likely have many years to live and to let your wealth grow further.

Rather than investing in the stock market as a whole, building wealth can be much faster if you take Warren Buffett’s approach and invest directly in businesses. Whether it’s providing capital directly or investing in specific stocks, this takes significant research and work to do correctly. The risk is much greater — you could lose all your money — but the potential benefit is also much greater. This isn’t the right approach for everyone, but if Buffett is in buying mode, you should be, too.

Are you seeing this volatility as an opportunity or are you moving away from stocks?

Photo: Aaron Friedman

Published or updated August 12, 2011.

About the author

Luke Landes is the founder of shizennougyou. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 18 comments… read them below or add one }

avatar 1 shellye

I’ve owned a number of Berkshire Hathaway Class B shares for years and have watched those shares grow tremendously, thanks to Warren’s sound management. And if “buy low, sell high” is how the game is played, then this is the best time to buy more shares of anything – when prices are low.

I wasn’t too happy when he bought shares of Goldman Sachs a few years ago, so now I own some of that too, but I have to trust that he knows what he was doing.

To answer your question, I bought shares in three energy companies this week at what I thought were bargain prices, so I’m looking for opportunities.

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avatar 2 Anonymous

I’m not changing anything about my stock plan right now. These things seem to even themselves out in the end. A couple days of worrying isn’t going to help me out in the long run.

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avatar 3 Anonymous

I am sticking with my plan! Most of my portfolio is made up of mutual funds which are constantly buying and selling. My monthly 403B contribution just bought into the market. I am in this for the long term.

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avatar 4 Anonymous

Would you say that qualitative investors are less affected by the recent downturn than quantitative investors? Although this volatility is definitely a great opportunity for day traders!

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avatar 5 Anonymous

I’m picking up a few extra shares of solid dividend stocks. The yield looks great with the lower price.

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avatar 6 Anonymous

I have used this as an opportunity to do some awesome dollar cost averaging. I am not changing any of my investing activity one bit. I was really glad to pick up some CSCO in the $13s. I bought some years ago for around that and it rose substantially. I always swore that if I could pick it up for that again, I would.

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avatar 7 lynn

I’m so glad I retired when I did and pulled things out just before the garbage hit the fan. I’m getting too old for the ups and downs. Only one small account is based on stocks.

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avatar 8 Cejay

I have to admit that my tolerance for risk is not very good so I leave it to my husband to do the selling and buying. He is buying more stocks but he is being very selective about it. I just hope the market cooperates.

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avatar 9 lynn

I do too Cejay. If I was younger I would take advantage of the turn in the market (a few days ago). These days I like the bird in hand.

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avatar 10 Ceecee

I wish I had more free cash to buy right now. The time seems right!

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avatar 11 lynn

I wish I had Buffet’s cash!

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avatar 12 Anonymous

I know a song whose lyrics are “who wouldn’t want to be Buffett? Either Warren or the other” (meaning Jimmy Buffett). Being a fan of both Buffetts, it makes me laugh every time I hear it :) I’d be happy with either Buffetts’ cash lol.

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avatar 13 Anonymous

Do you think it’s crazy if I take out home equity to invest?

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avatar 14 shellye

Generally speaking, you shouldn’t invest with money you can’t afford to lose. Leave your home equity in place and invest with money specifically set aside for that purpose.

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avatar 15 skylog

i added to my positions, for quite a few reasons, but in the end i am looking many many years down the road. if equities are worse off at that point then they are now…we all have bigger problems.

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avatar 16 qixx

Hopefully i’ll get to a better positive cash flow where i can do things such as this to increase my cash reserves. I think this is a great time to buy more stocks if you can afford it.

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avatar 17 Anonymous

I chose door 3: stick to the plan. I continued to invest automatically (through 401(k)s and similar) but other than that, I did not add nor remove money from any investments.

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avatar 18 Anonymous

I wish I had more money to use the volatility to my advantage. I’ve been keeping my eye on certain stocks and I’ve been right about them dropping and going up over the past few weeks.

But I’ve also been scared of being wrong, so I haven’t done anything to add to or even remove from my current positions.

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