In the fall of 2008, global markets were failing. Lehman Brothers, an investment bank with $600 billion in assets, filed for bankruptcy protection on Sept. 15 of that year, an inflection point in the economic slowdown that brought unemployment rates as high as 10 percent.
Two weeks later, during a single day on Sept. 29, the U.S. stock market lost $1.2 trillion in value as the Dow dropped 778 points, nearly 7 percent.
"You just felt like the world was unraveling," a senior equity trader named Ryan Larson told The New York Times that day. "People started to sell and they sold hard. It didn't matter what you had — you sold."
But there was one big investor who had a different outlook: Berkshire Hathaway CEO Warren Buffett.
In fact, Buffett was buying.
"I've been buying American stocks," Buffett wrote in a an opinion piece for The New York Times on Oct. 16, 2008. Berkshire Hathaway also made big investments during the crisis, backing General Electric and Goldman Sachs.
Buffett understood the severity of the crisis; he told CNBC that year it was like an "economic Pearl Harbor." So why was he buying stocks that were rapidly falling in price when everyone else was socking cash under their pillow?
"A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful," Buffett wrote in the Times.
In his view, the long-term value of innovative American business would continue to grow, despite the short term pain of the crisis. Buffett warned against investing in "highly leveraged entities, or businesses in weak competitive positions," but urged readers to see that the downturn provided an opportunity to buy strong companies at low prices.
"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," Buffett explained in the op-ed. "Fears regarding the long-term prosperity of the nation's many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now."
That prediction turned out to be correct: In the 10 years since the fall of Lehman Brothers, the S&P 500 has increased by 130 percent. Companies like Apple and Amazon have soared to new heights, hitting trillion dollar valuations.
If you invested $1,000 in Apple in early August 2008, it would have been worth more than $9,222.50 as of August 2, 2018, or over nine times as much, including price appreciation and excluding dividends, according to CNBC calculations.
Buffett's strategy wasn't perfect — he admits his timing was a bit off on his October call to buy, as markets continued to plunge in 2009. "It was right on a long term basis," Buffett told CNBC, "but it was way off for four or five months at least."
Of course, it's human nature to want to make investments when markets are going up, Buffett said Monday in an interview for CNBC's documentary "Crisis on Wall Street: The Week That Shook the World. "
"People start being interested in something because it's going up, not because they understand it or anything else," Buffett said. "The guy next door, who they know is dumber than they are, is getting rich and they aren't."
But instead of acting on emotional instincts, Buffett's advice is to follow that simple rule.
"Though markets are generally rational, they occasionally do crazy things," Buffett wrote in his 2018 shareholder letter. "Seizing the opportunities then offered does not require great intelligence, a degree in economics or a familiarity with Wall Street jargon such as alpha and beta.
"What investors then need instead is an ability to both disregard mob fears or enthusiasms and to focus on a few simple fundamentals. A willingness to look unimaginative for a sustained period — or even to look foolish — is also essential."
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