Warren Buffett Has Some Brilliant Advice For Investors Freaked Out About Geopolitics

Warren buffettAP ImagesWarren Buffett

2014 has been unnerving.

Every day, there’s a new worrisome headline coming out of Russia, Iraq, Libya, the Gaza Strip, or any of the world’s other geopolitical hotspots. And there’s also the ongoing fears of an ebola outbreak in West Africa, an unstable volcano in Iceland, and the ever-present risk of a solar flare knocking out the world’s communications networks.

We’re now reading about Russia invading Ukraine, which has caused U.S. stock market futures to tank.

So, what are investors to do?

Warren Buffett would probably recommend taking a step back, reflecting on history, and then looking to the future.

During the darkest days of the financial crisis in 2008, Warren Buffett wrote a brilliant op-ed for the New York Times, reminding us that bad things happen all of the time. Here’s an excerpt:

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 per cent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Over the long term, the stock market news will be good. 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.

Buffett made a similar statement in his 1994 letter to Berkshire Hathaway shareholders:

We will continue to ignore political and economic forecasts, which are an expensive distraction for many investors and businessmen. Thirty years ago, no one could have foreseen the huge expansion of the Vietnam War, wage and price controls, two oil shocks, the resignation of a president, the dissolution of the Soviet Union, a one-day drop in the Dow of 508 points, or treasury bill yields fluctuating between 2.8% and 17.4%.

But, surprise – none of these blockbuster events made the slightest dent in Ben Graham’s investment principles. Nor did they render unsound the negotiated purchases of fine businesses at sensible prices. Imagine the cost to us, then, if we had let a fear of unknowns cause us to defer or alter the deployment of capital. Indeed, we have usually made our best purchases when apprehensions about some macro event were at a peak. Fear is the foe of the faddist, but the friend of the fundamentalist.

Buffett’s saying two things. First, the market will weather crises no matter how bad they are. Second, a good business offering attractive long-term returns is always worth investing in.

Are stocks about to crash? Maybe. Maybe they will keep rising.

But whatever the path, prices will likely be higher for patient investors.

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