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How did these famous investors deal with market meltdowns?

Volatility is ruling the markets right now as the coronavirus contagion sends investors into a tailspin. The S&P/ASX 200 Index (ASX: XJO) is down by 7.40% so far today to sit at 5,127 points.

With uncertainty the rule of the day, let’s take a look at how some famous investors advised reacting to market meltdowns. 

“The time to buy is when there’s blood in the streets” – Baron Rothschild

Baron Rothschild, a member of the Rothschild banking family, is credited with this quote, which has become a credo for contrarian investors. Rothschild made a fortune buying in the panic that followed the Battle of Waterloo.

The idea behind this is that markets are subject to herding behaviour. As such, there will periodically be times when markets are over or undervalued. Contrarian investors try to do the opposite of the crowd, diving in when there is a price drop and holding fire when the market is at its peak.

“Be fearful when others are greedy, and greedy when others are fearful” – Warren Buffett

Warren Buffett is a famous value investor who has made some of his best investments during market downturns. Using this philosophy, he pounced on opportunities when markets were reeling, with his investment record speaking for itself.

In the wake of the GFC, Buffett bought Bank of America shares when they were trading at just US$10. Today those shares are trading at over US$24, delivering Buffett a hefty return. 

“Buy when most people, including experts, are pessimistic, and sell when they are actively optimistic” – Benjamin Graham

Benjamin Graham is widely known as the father of value investing who emphasised buy-and-hold investing and contrarian mindsets. He said that an intelligent investor gets satisfaction from the thought that their operations are exactly the opposite of the crowd.

A proponent of fundamental analysis, Graham once taught Warren Buffett and wrote the book ‘The Intelligent Investor’, which Buffett described as “the best book about investing ever written.” Graham said that the best values are often found in the stocks that were once hot and have since gone cold. 

“To buy when others are despondently selling and to sell when others are euphorically buying takes the greatest courage, but provides the greatest profit” – John Templeton

John Templeton was once named by Money magazine as “arguably the greatest global stock picker of the century.” A fund manager, he profited from the Great Depression by buying 100 shares of each NYSE company that was selling for less than $1 at the time. He later made many times his money back when industry in the US picked up as a result of World War 2.

According to Templeton, if you want to have a better performance than the crowd, you must do things differently from the crowd. The time of maximum pessimism is the best time to buy, he said, while the time of maximum optimism is the best time to sell. 

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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Kate O'Brien