How do investment masters respond when the market declines?

Recently, the U.S. stock market has plummeted, let's encourage each other!

Investment masters on Wall Street, when faced with the rapidly changing stock market, some became famous by boldly bottom-fishing and accumulating immense wealth, while others bought in halfway down and experienced painful losses.

Today, let's take a look at the experiences and lessons of these masters, perhaps we can gain some inspiration from them.

Stock God Buffett

Famous Quote

When the stock market rises sharply, be wary of greed and exit early; when the stock market falls sharply, be wary of fear and seize the opportunity to bottom-fish for bargains; buy heavily during big drops, and buy more as prices fall, rather than cutting losses and leaving the market.

Classic Battles

Buffett has experienced four major stock market crashes in his lifetime: in 1973, 1987, 2000, and 2008.

In the one or two years before each market crash, Buffett would exit early, not participating in the final wave of the market, but rather watching others gamble foolishly in the stock market. When the market had fully declined, he would then calmly enter the market in large quantities to pick up the stocks he had previously favored.

Taking the 1987 stock market crash as an example, when the market fell 36% from August to October 1987, the drop was rapid, and so was the rebound. As a result, Buffett regretted not having time to "let the bullets fly."

Faced with investment opportunities that come and go quickly during a crash, Buffett remained very calm because he believed the next opportunity would come again, as long as he patiently waited.

The insight Buffett gained this time was: sometimes a crash comes and goes quickly, making it impossible to seize the bottom-fishing opportunity; one should remain calm and not blame oneself or let investment behavior spiral out of control for trying to grasp every opportunity.

The following year after the crash, the opportunity came, and Buffett began to buy Coca-Cola in large quantities. By 1989, he had invested $1 billion in Coca-Cola within two years, and after continuing to increase his holdings in 1994, his total investment reached $1.3 billion.

By the end of 1997, the market value of Buffett's Coca-Cola shares had risen to $13.3 billion, earning ten times in ten years.

Lessons Learned

Buffett's main strategies during stock market crashes are threefold:

First, select investment industries carefully. Buy only when the net assets far exceed the stock price.

Second, engage in value trading. He first calculates the intrinsic value per share based on the overall value of the listed company, then compares it with the stock price. If the intrinsic value is significantly higher than the stock price, he buys, and then sells when the stock price rises.

Third, invest only with spare money. Even when faced with stocks expected to rise 100 times in the next ten years, Buffett insists on using only spare money for investment, waiting for opportunities if losses occur.

Peter Lynch

Famous Quote

The historical patterns of stock market fluctuations tell us that all major declines will pass, and the market will always rise higher. Historical experience also shows that major market declines actually release risks and create good investment opportunities to buy excellent company stocks at very low prices.

However, bottom-fishing is not that simple. Instead of constantly trying to "catch the bottom" and getting trapped, it is better to wait for the bottom to appear before entering.

Classic Battles

During the 1987 U.S. stock market crash, many people went from millionaires to poverty, suffering mental breakdowns and even committing suicide. At that time, the super star of the U.S. securities industry, Peter Lynch, managed over $10 billion in the Magellan Fund, and in one day, the fund's net asset value lost 18%, amounting to a loss of $2 billion Like all open-end fund managers, Lynch had only one choice: to sell stocks. To cope with the unusually large redemptions, Lynch had to sell all his stocks.

More than a year later, Peter Lynch still felt scared when he recalled, "At that moment, I really couldn't tell whether 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 and it was just that Wall Street was about to collapse?"

After that, Peter Lynch continued to experience many stock market crashes but still achieved very successful performance.

Lessons Learned

First, do not panic and sell all your stocks at a low price. If you desperately sell stocks during a market crash, your selling price will often be very low.

The market in October 1987 was terrifying, but there was no need to sell stocks on that day or the next. By November of that year, the market began to rise steadily. By June 1988, the market had rebounded by more than 400 points, which means an increase of over 23%.

Second, have the courage to hold onto good company stocks.

Third, be bold in buying good company stocks at low prices. A market crash is the best opportunity to make big money: enormous wealth is often made during such stock market crashes. A crash is a good opportunity to make big money.

Graham: The Godfather of Wall Street

Famous Quotes

First, never lose money; second, never forget the first rule.

Classic Battles

Graham was Buffett's mentor, the father of security analysis, and the pioneer of value investing. In September 1929, the Dow Jones Industrial Average peaked at 381 points and then began to decline.

On October 29, the Dow Jones plummeted by 12%, a day described as the "worst day" in the 112-year history of the New York Stock Exchange, known as the most famous "Black Tuesday" in history.

In November 1929, the Dow Jones fell to a low of 198 points and then stabilized and rebounded. By March 1930, it had risen to 286 points, a rebound of 43%.

Many investors believed that the worst was over and that the stock market was about to reverse. Graham thought so too, and he began to enter the market to buy at the bottom.

He bought good stocks that were very cheap from a value assessment perspective, and to achieve greater returns, he also used margin for leverage.

However, after the market rebound continued until April, it began to crash again. The Dow Jones fell by 33% in 1930, and the fund managed by Graham lost as much as 50.5%.

By July 1932, the Dow Jones reached its lowest point of 41 points, marking a maximum decline of 89% from the peak of 381 points, while the fund managed by Graham lost as much as 78% during the same period. This super bear market nearly bankrupted him.

Graham later made a comeback, writing the investment bible "Security Analysis" and "The Intelligent Investor," summarizing an eternal fundamental principle of value investing: margin of safety.

Lessons Learned

Safety first, profit second.

Bill Miller: The Contrarian Investment Genius

Quote

I often remind my analysts that the information you have about a company represents 100% of the company's past, while the valuation of the stock depends 100% on the future.

Classic Battle

The Legg Mason Value Trust Fund managed by Miller outperformed the S&P 500 index for 15 consecutive years from 1991 to 2005, creating the most remarkable performance record for a fund manager in history, earning him the title of the most successful fund manager of this era. However, this honor was destroyed by his own hands in just one year.

During the subprime crisis, many previously excellent company stocks plummeted significantly, and Miller believed that investors were overreacting, so he bought against the market. He thought that the crisis was a great opportunity to make money, but it turned into the most severe bear market since the Great Depression.

Although his contrarian investment decisions over the past 15 years have proven to be correct in hindsight, this time he suffered greatly. Miller's stock list resembled a "Martyrs' List" during this crisis: AIG, Bear Stearns, Fannie Mae, Citigroup, Washington Mutual, etc.

In 2008, at the age of 58, Miller said in an interview, "From the very beginning, I failed to properly assess the severity of this liquidity crisis."

Although Miller had often made money from market panic in the past, he said he did not expect the crisis to be this severe, with fundamental issues so deep that even high-quality listed companies, once leaders in the market, collapsed.

"I still lack experience," Miller said, "Every decision to buy stocks was wrong; it was terrifying."

Lessons Learned

"Any extraordinary performing portfolio can succeed for a period because it has insurance against price misalignment. The market's estimate of this future number is wrong.

We find price misalignment by comparing the market's valuation of the company with our own valuation of the company, using a combination of various factors."

Philip Fisher: The Father of Growth Stock Value Investment Strategy

Quote

Learn to spend a lot of time researching and do not rush to buy. In a continuously declining market environment, do not buy unfamiliar stocks too quickly.

Classic Battle

In 1929, the U.S. stock market was in a frenzied bull market before the crash, but Fisher found that many industries in the U.S. had unstable prospects and that the stock market had serious bubbles. In August 1929, he submitted a report to senior bank executives stating, "The most severe bear market in 25 years is about to unfold."

This can be said to be Fisher's most astonishing stock market prediction in his life, but unfortunately, Fisher was "bearish while being bullish."

He said, "I could not help but be enchanted by the allure of the stock market. So I searched everywhere for some relatively cheap stocks because they had not yet risen to their proper levels." When the U.S. stock market suddenly crashed in October 1929, Fisher was not spared and suffered heavy losses in the stock market crash, losing everything.

Lessons Learned

Fisher began to understand that the main factor determining stock prices is not the current P/E ratio, but the expected P/E ratio for the next few years He said that if one can cultivate their abilities and determine the possible performance of a certain stock in the next few years within reasonable upper and lower limits, they can find a key that not only avoids losses but also earns substantial profits.

Excerpt from "Qilehui"