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Now's a great time to reread Warren Buffett's op-ed he wrote after one of history's worst sell-offs

Sam Ro
Managing Editor
"I've been buying American stocks," Warren Buffett said.

Once again, the stock market is within arm's reach of its all-time high.

This is a real shame for investors who've been sitting on the sidelines, crippled by fear of the ever-present uncertainties that threaten to trigger the next sell-off. On Friday we learned that equity funds experienced $9.2 billion worth of outflows, which was the seventh straight week of outflows. Meanwhile, investor sentiment remains historically low.

“This heightened retail pessimism is also reflected in the AAII investor sentiment survey where the number of bullish responses fell to just 18% last week, taking the four-week average to its lowest level since 1990,” HSBC’s Ben Laidler observed. “Interestingly, sentiment has continued to decline despite tentative signs of improvement in the outlook for growth.”

Laidler's observation nicely sums up the nature of risk markets like the stock market: not many folks ever feel great about betting on it.

So as we await what experts warn will be a "vortex of negative headlines" that could send stocks plummeting, we remember an incredibly prescient piece Warren Buffett wrote in fall of 2008.

"I've been buying"

Over the span of his legendary career in investing, Warren Buffett has said a lot of brilliant things. But during the darkest, most hopeless moments of the financial crisis, Buffett wrote an op-ed for The New York Times that was particularly timely.

“The financial world is a mess, both in the United States and abroad,” Buffett said in the piece dated October 16, 2008. “Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary. So ... I’ve been buying American stocks.”

Just the day before, the Dow Jones Industrial Average (^DJI) fell a breathtaking 733 points or 7.9%. This was only a month after Lehman Brothers went bankrupt, Merrill Lynch was saved by Bank of America, and AIG secured an $85 billion bailout package.

To be clear, Buffett never suggested the stock market had hit rock-bottom. He only argued the market would be higher in years to come.

“I can’t predict the short-term movements of the stock market,” he said. “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.”

Indeed, the Dow would fall from 9,000 that day to 6,600 in March 2009 before booming to the near-18,000 level it is at today. In other words, the Dow has doubled.

Warren Buffett's 2008 op-ed was very well-timed.

It’s an op-ed this author has personally quoted over and over and over and over and over again whenever the market had appeared to be reacting to bad news, which is often.

This is not to say you should just constantly be buying stocks no matter what. Rather, it’s about putting worries and fears about the market into context.

“Over the long term, the stock market news will be good,” he said. “In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”

It’s no wonder why Warren Buffett is the greatest investor of all time.

Read Buffett’s full op-ed at NYTimes.com.

Sam Ro is managing editor at Yahoo Finance.

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