“A market downturn doesn’t bother us. For us and our long-term investors, it is an opportunity to increase our ownership of great companies with great management at good prices. Only for short-term investors and market timers is a correction not an opportunity.” — Warren Buffett
The chart below illustrates how four different investor reactions to a market correction can impact returns. Four hypothetical investors each invested $10,000 in the market from January 1, 1972, to December 31, 2013, but all four investors acted differently during the 1973 to 1974 bear market.
The Nervous Investor sold out and went to cash. The Market Timer sold out but moved back into stocks on January 1, 1983, at the beginning of a historic bull market. The Buy and Hold Investor held steady throughout the period. And lastly, the Opportunistic Investor realized that the bear market had created opportunities and contributed an additional $10,000 to his original investment on January 1, 1975.