Since 1965, shares of Warren Buffett’s conglomerate, Berkshire Hathaway (BRK.B), have delivered a compounded annual return of 19.9%—almost double that of the S&P 500 over the same period. Unlike many of Wall Street’s famous money managers, Buffett has thrived during market crashes by following a straightforward approach any investor can follow: buying quality businesses at discounted prices when others are selling in a panic.

Below, we break down the principles that have kept Buffett successful through several market crashes.

Principle 1: Stay Calm and Avoid Panic Selling

Buffett often emphasizes that “the stock market is designed to transfer money from the
active to the patient.” He cautions against emotional decision-making during market downturns, noting that selling out of fear often leads to significant losses.

A look at the S&P 500 Index’s long-term performance proves his point—despite countless sell-offs, recessions, and geopolitical crises, $100 invested in 1928 would be worth over $982k today.

Principle 2:

Among Buffett’s best-known and most-repeated quotes is, “Be fearful when others are greedy and be greedy only when others are fearful.” This isn’t just clever wordplay—it’s the backbone of his wealth-building strategy.

While most investors run for the exits during market crashes, Buffett reaches for his checkbook. During the 2008 financial crisis, when banking stocks were in free fall and many predicted the collapse of the financial system, Buffett invested $5 billion in Goldman Sachs Group, Inc. (GS). The deal included preferred shares with a 10% dividend yield and warrants to purchase common stock, ultimately netting Berkshire Hathaway over $3 billion in profit.

Principle 3: Focus on Business Fundamentals

Buffett has a simple test for market downturns: Does a 30% drop in share price change how many Cokes people will drink next year? Does it affect how many people will use their American Express cards? If the answer is no, then the intrinsic value remains intact despite the market’s temporary opinion.

Berkshire Hathaway’s investment in the Washington Post illustrates this approach. In 1973, during a severe market decline, Buffett purchased shares at just 25% of what he calculated as their intrinsic value. The price fell even further afterward, but Buffett wasn’t deterred—he understood the fundamental strength of the business wasn’t reflected in its stock price. His patience paid off: Berkshire’s $10.6 million investment ballooned to over $200 million by 1985, a return of almost 1,900%. This wasn’t investment wizardry—it was Buffett recognizing that fearful markets often misprice great businesses. 

Principle 4: Don’t Time the Market

Buffett discourages trying to predict market movements, calling it a fool’s game, and instead holds for the (very) long term. Once again putting his money where his mouth is, Buffett has held shares of
Coca-Cola for 36 years and has held American Express shares since the 1960s.

Principle 5: Keep Cash Reserves for Opportunities

While most financial advisors recommend staying fully invested, Buffett views cash differently—not as something that doesn’t earn interest or dividends sitting in a bank account, but as “financial ammunition” for when rare prospects appear.

Berkshire’s massive cash position—often criticized during bull markets—transforms from a liability into Buffett’s secret weapon during crashes. In 2010, after deploying billions during the financial crisis, Buffett formalized this strategy in his shareholder letter, pledging to maintain at least $10 billion in cash reserves (though typically keeping closer to $20 billion). This wasn’t excessive caution but strategic preparation for the next inevitable market panic.

In the mid-2020s, with the markets on edge, Buffett is again holding a record cash stockpile.

The Bottom Line

Buffett’s philosophy underscores the importance of staying rational, focusing on fundamentals, and seeing market declines as opportunities rather than setbacks.