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1 Timely Warren Buffett Tip to Handle a Stock Market Rout

Credit: Fool Editorial Photos

The date was 16 October 2008.

At that point in time, the U.S. stock market barometer, the S&P 500, had fallen by a heart-wrenching 40% from an intraday high of 1,576 points that was set barely a year ago on 11 October 2007.

In the midst of the carnage, a certain Warren Buffett had penned an article – on 16 October 2008 – about how he planned to buy shares against the backdrop of a fearful decline in stocks.  In the article was the following passage:

“Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up.

So if you wait for the robins, spring will be over.”

Buffett’s timing was awful. The S&P 500 actually bottomed out at around 28% below where it was when his article was out. But crucially, Buffett still got the decision largely right – the S&P 500 closed at a level yesterday night that’s nearly double where it was back in 16 October 2008.

There’s an important takeaway here: Investors can still do well without needing to catch the lowest prices on offer.

In a previous article of mine, I shared how I had picked up units of Parkway Life REIT (SGX: C2PU) for $0.73 cents apiece on 27 April 2009 . While my purchase price turned out to be a good one over the long run (Parkway Life REIT is trading at more than $2.30 today), it was not the lowest possible price. In fact, Parkway Life REIT was actually at an intraday low of $0.68 on 10 March 2009, .

A Fool’s take

In some ways, the current stock market rout in Singapore can feel the same as what had happened in the U.S.A back in 2008. For some perspective, the Straits Times Index’s (SGX: ^STI) current level represents a fall of around 19% from its peak this year.

If you are thinking of waiting for the market to “bottom out” before investing, do consider investing in stages instead. As one of the best investors of our generation (Buffett) has showed, even he cannot time his entry into the stock market perfectly – it is likely that no one can do it consistently either.

Investing is hardly about catching the absolute-top or perfect bottom. It is about investing in stages and having the patience to let the underlying business grow – through that, we may stand a better chance in generating satisfying returns for ourselves.

Learn more about how to invest like Buffett through a FREE subscription to Take Stock Singapore. Sign up here to The Motley Fool's weekly investing newsletter that will teach you how to GROW your wealth in the years ahead.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong owns shares in Parkway Life REIT.