What You Can Learn From How Billionaires Handle a Market Downturn
Market downturns are a fact of life, and if you've been investing for any length of time, you've probably been through at least one. While many lose money during a downturn, there are always others who manage to come out unscathed — or even richer — once the dust settles.
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Some of these successful investors go on to be quite wealthy, and those of us with more modest portfolios can learn something from them.
Here's what you can learn from how billionaires handle a market downturn.
Warren Buffett, at age 94, has been through a few market downturns, and his well-known advice still rings true. 'Be greedy when others are fearful, and fearful when others are greedy,' is one of Buffett's most-quoted sayings. He first made this philosophy public in an op-ed in the New York Times in 2008, and it still rings true today. Billionaire investors like Buffett see a market correction as a buying opportunity.
When Mark Cuban sold Broadcast.com, his online streaming company, to Yahoo for $5.7 billion in 1999, he instantly became a billionaire. One-third of the streaming company was owned by Cuban, who now found himself with $1.4 billion of Yahoo stock. As heady as the sounded, Cuban knew that he needed to protect himself. He sold calls and bought puts as a hedge, and when the market crashed shortly afterward, he was protected.
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Bill Ackman, founder of Pershing Square Capital, loves a good downturn. He specializes in buying companies whose stocks have taken a nosedive and holding them as they rebound. One of his latest purchases is Nike (NASDAQ: NKE), which has been falling steadily since 2022, having lost over 50% of its value in those three years. Moves like this have other investors taking notice, which can support the stock as the company tries to turn things around.
David Tepper is the founder of Appaloosa Capital and is well-known in investing circles for his contrarian approach. He famously made wildly successful trades in 1987, gobbling up distressed bonds on Black Monday; in 2008 and 2009, he bought distressed financial institutions and mortgage-backed securities amid the housing crisis. Tepper's hedge fund returned over 130% in 2009, cementing his legacy as a contrarian investor.
George Soros has made his billions by studying global economic trends and acting decisively. Soros's investing approach includes the assumption that biases and emotions of investors can distort prices, particularly in times of volatility. In 2008, for example, Soros recognized that the market was over-leveraged and took action by investing in credit default swaps before the market crashed.
There are a few things these investors have in common. One, of course, is that they are extraordinarily successful. Another is that they are opportunists, taking advantage of a market downturn rather than fleeing to safety. A third common thread is that they don't veer very far from their core investing philosophies, no matter what the market does. They stay true to what they know, and while they may do more of what made them rich when they see the opportunities a downturn presents, they don't shift their focus very much, if at all.
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