The Beginner’s Guide to Investing

What Warren Buffett, Kevin O'Leary and other experts say to do when the market tanks

Warren Buffett
Gerard Miller | CNBC

Stocks fell sharply on Monday, August 5, with the Dow Jones Industrial Average plunging 850 points and the S&P 500 falling 3.3%. The Nasdaq Composite dropped as well, falling 3.9%.

That comes in the wake of increasing conflict in the trade war between the U.S. and China.

China, which has historically controlled its currency, the yuan, allowed it to fall to its lowest level against the dollar in over 10 years, CNBC reports. In response, President Donald Trump accused China of manipulating its currency. "This is a major violation which will greatly weaken China over time!" he said in a tweet.


China "appears to have decided that, given the increasingly dim prospects of a trade deal with the US, the boost to China's export sector from currency depreciation is worth attracting the ire of the Trump," Julian Evans-Pritchard, senior China economist at Capital Economics, wrote in a note.

"The fact that they have now stopped defending 7.00 against the dollar suggests that they have all but abandoned hopes for a trade deal with the US," Evans-Pritchard added.

However, for the average investor, market ups and downs are no reason to panic. Here's what four financial experts say you should do in times like these.

Warren Buffett: 'Don't watch the market closely'

Even dramatic shifts in the market don't have to be cause for concern, legendary investor and Berkshire Hathaway CEO Warren Buffett says. Stick to the basics.

"Don't watch the market closely," he told CNBC in 2016 amid wild market fluctuations. "If they're trying to buy and sell stocks, and worry when they go down a little bit … and think they should maybe sell them when they go up, they're not going to have very good results."

These quotes reveal Warren Buffett's legendary business mind

Buffett emphasized that holding onto investments long-term is crucial if you want them to pay off. "The money is made in investments by investing and by owning good companies for long periods of time," he said. "If they buy good companies, buy them over time, they're going to do fine 10, 20, 30 years from now."

In his 2018 shareholder letter, Buffett explained that the markets are always going to be volatile, so the best thing any investor can do, regardless of experience, is to keep a level head.

Ray Dalio: Do 'the opposite' of what your instincts say

Ray Dalio, the billionaire founder of the investment firm Bridgewater Associates, says that although it's tempting to sell when the market begins to drop, giving in to your fear is not a sound strategy.

"You can not possibly succeed that way," Dalio said at the Harvard Kennedy School's Institute of Politics. "You've got to do the opposite. It's when you're not scared you probably want to sell and, when you are scared, you probably want to buy."

That's because the best times to buy and sell stock often goes against what may seem logical. "The greatest mistake of the individual investor is to think that a market that did well is a good market, rather than a more expensive market. And that a market that did badly is a worse market ... rather than a cheaper market," Dalio explained.

Dalio's No.1 piece of advice for average investors is to avoid trying to anticipate or react strongly to market moves at all: "Don't play the game, because it is pros against you," he said.

Kevin O'Leary: 'You should never get emotional'

Don't base your financial decisions on your feelings, warns Kevin O'Leary, a financial expert and investor on ABC's "Shark Tank." Instead, stick to the facts.

"Never cry when the market goes down, because it's not crying for you," he told CNBC Make It. "You should never get emotional about the stock market."

Kevin O'Leary: Here's how to win when the stock market crashes

When investing, think long-term. "You'll see the markets go up and down," O'Leary said. "But over a long period of time — and this has been consistent since the beginning of stocks in America — they grow over time because the companies and the economy grows over time."

O'Leary recommends investments like exchange traded funds, which are buckets of securities that track an index, because they are inexpensive and tax efficient. But if you do choose to invest in individual companies, you should buy ones that are "profitable and that have good balance sheets that pay dividends," he said.

Greg McBride: Do 'nothing'

When the market is crashing, the No. 1 thing you should do with your money is absolutely nothing, Greg McBride, CFA and chief financial analyst at Bankrate, told CNBC Make It.

"Individual investors' biggest enemy in a market correction," or when the market is down more than 10 percent from a high, "is going to be themselves," McBride said. "The worst thing you can do is the panic-selling, knee-jerk reaction."

It's natural for the market to have ups and downs, McBride explained. If you rush and sell the minute a downturn starts, you're left out when stocks rebound a week, month or year later.

Instead of watching the market's every move, keep your eye on the underlying economic factors, McBride said. And when you invest, do it for the long haul: "Even in the face of doomsday forecasts of a recession, markets tend to recover all of that within five years. If you're investing for decades, who cares?"

This article was originally published on May 13, 2019 and updated on August 5, 2019 to reflect the news that the markets dropped after the trade war between the U.S. and China intensified.

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Disclosure: CNBC owns the exclusive off-network cable rights to "Shark Tank."