UK Markets open in 1 hr 41 mins

I’d learn from Warren Buffett to make a million from the stock market crash

Harvey Jones
·3-min read
One million celebration illustration.
One million celebration illustration.

This year’s stock market crash has given investors a great opportunity to build their wealth by investing in cheap UK shares. The FTSE 100 has fallen by more than a quarter this year, which means there are plenty of bargains to be had.

You have to choose your stocks carefully, though. Many companies now face a much tougher future. Some will struggle to survive. Yet at the same time, plenty of top companies are trading at tempting prices, as nervy investors dump the good with the bad.

If you want to make a million and enjoy a comfortable retirement, this year’s stock market crash could help power you on your way. I would take this chance to build a balanced portfolio of FTSE 100 and FTSE 250 shares, at today’s reduced prices. If you are feeling wary right now, these tips from the world’s greatest investor, Warren Buffett, might steady your nerves.

I’d buy shares in the stock market crash

Buffett famously said: “Remember that the stock market is a manic depressive”. By that he means it tends to vary from one extreme to the other. When the news looks good, share prices shoot for the stars, but when it’s bad, they crash back to earth. This is the price you pay for the much higher return that equities generate over the longer run. So do not run for cover when stock markets crash, treat it as part of the ride.

In a bear market, investors lose their nerves and become risk averse. However, Buffett tells us that the real threat does not come from a stock market crash, but yourself. “Risk comes from not knowing what you are doing”.

Investors who don’t know what they are doing will come unstuck, say, by panic selling and crystallising their losses, or trying to make a fast buck from short-term trading. Those who do know will be looking to buy quality companies trading at bargain prices, with the aim of holding them for the long term. As Buffett said: “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years”.

I’d buy cheap UK shares to make a million

History shows us that stock markets always recover from a crash, if you give them enough time. Focus your energies on shares that will be there, even if it takes several years to bounce back from Covid-19. So do not just buy cheap shares in the hope of making a fast million. Look for financially strong businesses with loyal customers, steady cash flows, minimal debt, and a wide economic moat to guard against competitors. They may also be able to take advantage of distressed competitors, by snapping them up at reduced prices.

If you know what your are doing, I reckon this year’s stock market crash offers long-term investors a huge opportunity. As Buffett said: “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble”.

The post I’d learn from Warren Buffett to make a million from the stock market crash appeared first on The Motley Fool UK.

More reading

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2020