For the last 53 years, the company has built value by reinvesting its earnings and letting compound interest work its magic,”Buffett wrote. “Year by year, we have moved forward. Yet Berkshire shares have suffered four truly major dips. Here are the gory details.”
March 1973 to January 1975 – 59.1% decrease
10/2/87 to 10/27/87 – 37.1% decrease
6/19/98 to 3/10/2000 – 48.9% decrease
9/19/08 to 3/5/09 – 50.7% decrease
All four of those big drops coincided with major market moving events.
59.1% plunge from March 1973 – January 1975 occurred when the US economy was mired in an ugly recession resulting from the oil crisis and fallout from the Bretton Woods agreement. The benchmark S&P 500 lost as much as 44% during that time.
The 37.1% drop during October 1987 happened after Black Market stock market crash. The S&P 500 bottomed out at a loss of 34%.
The 48.9% slide from June 1998 to March 2000 occurred just ahead of the dotcom bubble’s burst. The S&P 500 actually gained 27% during this period.
The 50.7% plunge from September 2008 – March 2009 occurred during the darkest days of the Great Financial Crisis. The benchmark S&P fell 44% over this time.
“This table offers the strongest argument I can muster against ever using borrowed money to own stocks,”Buffett wrote.
There is simply no telling how far stocks can fall in a short period. Even if your borrowings are small and your positions aren’t immediately threatened by the plunging market, your mind may well become rattled by scary headlines and breathless commentary. And an unsettled mind will not make good decisions.”
Buffett concluded that big drops are great opportunities for those who are not in debt.
To reflect on his words on the February minor correction, I was straddled with a huge debt in AAPL options position which cause me to lose focus on the bigger picture. It was a good opportunity to buy into undervalue companies then. Never be in an over leveraged position.
If you can keep your head when all about you
Are losing theirs and blaming it on you,
If you can trust yourself when all men doubt you,
But make allowance for their doubting too;
If you can wait and not be tired by waiting,
Or being lied about, don’t deal in lies,
Or being hated, don’t give way to hating,
And yet don’t look too good, nor talk too wise:
If you can dream—and not make dreams your master;
If you can think—and not make thoughts your aim;
If you can meet with Triumph and Disaster
And treat those two impostors just the same;
If you can bear to hear the truth you’ve spoken
Twisted by knaves to make a trap for fools,
Or watch the things you gave your life to, broken,
And stoop and build ’em up with worn-out tools:
If you can make one heap of all your winnings
And risk it on one turn of pitch-and-toss,
And lose, and start again at your beginnings
And never breathe a word about your loss;
If you can force your heart and nerve and sinew
To serve your turn long after they are gone,
And so hold on when there is nothing in you
Except the Will which says to them: ‘Hold on!’
If you can talk with crowds and keep your virtue,
Or walk with Kings—nor lose the common touch,
If neither foes nor loving friends can hurt you,
If all men count with you, but none too much;
If you can fill the unforgiving minute
With sixty seconds’ worth of distance run,
Yours is the Earth and everything that’s in it,
And—which is more—you’ll be a Man, my son!
Source: A Choice of Kipling’s Verse (1943)