Buffett's 7 words for market downturns

Warren Buffett wrote seven words during the 2008 financial crisis that help investors see market downturns as buying opportunities.

“Bad news is an investor's best friend”

Why bad news helps investors

Bad news creates fear that pushes stock prices below fair value, allowing investors to buy at discounts.

Historical market corrections

Since 1980, the S&P 500 has had average yearly declines of 14% but annual returns of 13.3% including dividends.

Post-correction returns

After a 10-19% market drop, the S&P 500 typically gains 30% in the next year; after a 20% drop, it gains 37%.

Buffett's key insight

Stocks feel safest when prices are high but that's when they're most expensive; they feel most dangerous when prices are low but that's when long-term returns are best.

When to buy during downturns

Investors with long time horizons should use market downturns to add to investments, not avoid them completely.