A Leadership Lesson from Warren Buffett in the 2008 Credit Crisis

Warren Buffett leadership

In the midst of the 2008 worldwide credit crisis, one person showed leadership and stood out. That person was billionaire Warren Buffett.

One of the most visible signs of the “economy” to the average person is the stock market.  The market can have wide swings and how it does on any given day may have nothing whatsoever to do with the economy as a whole.

Yet, it still feels that way when you watch the evening financial news.  The typical person equates the market with the economy — and vice versa.  Even though they are different.

That was especially the case back in the financial crisis of 2008.  Most of the world’s major exchanges had seen wild trading swings.  Stock market indices were down everywhere.  Here in the United States the Dow Jones Industrial Average was down to around 9,000, some 5,000 points lower than its high in October 2007.

Investors seem manic with fear.  Ordinary citizens and business owners felt fear.  Anyone who had retirement money in a 401(k) or IRA felt it.  So did business owners who rely on spending by the very consumers who might turn off the spending spigot due to fear.

That fear might have been irrational.  But it was tangible.

The Warren Buffett Leadership Lesson

At the time I wrote this piece I was impressed by Buffett’s leadership.

Throughout it all there was hardly anyone who stood up as a leader and said “I’m investing in the stock market.  Don’t panic.”

Except for one.  Warren Buffett, at the time the richest man in the world, wrote an op-ed (opinion editorial) in the New York Times entitled simply “Buy American.  I am.”

He didn’t give false assurances that things were just rosy.  He was straight forward in his assessment, writing:

“THE financial world is a mess, both in the United States and abroad. 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.”

He makes an important distinction, that the stock market is not the same as the economy.

In fact, conventional wisdom has it that the stock market will go down and then start to come back up, in advance of a recession.  Stock markets are leading signals of the economy.

That’s why he said it was the time to act and buy, when others were operating on emotion:

“A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But 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.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. 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.”

That’s the leadership lesson from Warren Buffett.  Look at things unburdened by negative emotions like fear.  Act now in anticipation of the long term trends, not short term market fluctuations.

What Buffett’s Leadership Meant to Small Business Owners

Looking back, Buffett’s words make perfect sense.  He turned out to be right.

But at the time, the United States financial markets were gripped by fear. Fallout from the credit crisis was still unfolding — day by day. The ramifications had yet to make their way through the economy.

Wild stock market swings were one of the most visible signs of the 2008 credit crisis to the average person.  (Layoffs and foreclosures also were signs, although more selective.)

It wasn’t the end of the world as we knew it, although we went through a very rough time.  Some people and companies fared worse than others.  Some businesses didn’t survive. Other businesses had to pull back. Still others had to change direction to survive.

Business owners and employees alike probably ended up with a lighter retirement portfolio. It took some years to recover the value.

But mostly everyone got through it.  Somehow.

At the time I wrote, “If you are a business owner with money in an SEP, IRA, 401(k) or other retirement plan, or if you have been investing for a college fund for your children or investing for some other purpose, it’s probably painful to look at your portfolio right now.  Most likely it’s down — way down.  It’s for that reason that the stock market matters to us. It’s because of any investments each of us may have — and because it is a visible sign most people react to.”

It was scary time back then in 2008. But we avoided a major catastrophe.  It wasn’t the second coming of the Great Depression.

We needed someone of the stature of Warren Buffett to step up and start to bring back confidence. Thank you, Mr. Buffett, then and now.

Image: Mark Hirschey, Creative Commons via Wikipedia


Anita Campbell Anita Campbell is the Founder, CEO and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses.

10 Reactions
  1. I got out this summer and it was sheer dumb luck but am I ever glad i did, as I planned to get back in but never did. Now I can buy WooT! 🙂

  2. The cliché, buy low and sell high, is often spoken more than used. Mr. Buffet is not alone in his thinking. Another investor (whose name evades me) said he’d rather get in while the market is low and volatile than miss opportunities, and, that we will look back in a couple of years and say this was the time to buy. I agree. History repeats itself and so I am researching opportunities.

  3. I think you could become a successful trader if you use an contrarian investment strategy and go against the mainstream position. If you are interested in some book tips, please read my post, NYSE, May 17, 1792. Click on “Martin Lindeskog” Says:

    I don’t think that the solution is to buy American stocks. I recommend you to read Harry Binswanger’s article, “Buy American” Is Un-American. http://aijohp.notlong.com

    I will discuss this issue in my next podcasting show and post for Open Forum.

  4. Cheap can often become cheaper …….
    Deep value has no meaning anymore ….

    Mr Buffet started years ago when “buy & hold” made sense …..

    Tell that to the shareholders of GM, Ford, GE, Yahoo ….. Dell …….
    Mr Buffet will be remembered as the greatest investor of “his” time …..

    If you invested in Berkshire 10 years ago, you are not making money ….

    The game has changed, and the rules will change ……

    Russian billionaires will soon end up bankrupt ……

    No one knows what will happen in 6 months ……

    Own your own business, control your destiny ….. export, export, export ……

  5. Prasad Thammineni

    I read the op-ed as well and liked his key messages that you highlighted.

    This is not the first time that Mr. Buffet has encouraged buying value stocks and I wish I listened to him the past.

    I lost a lot of money during the dot com bubble and stayed in cash since then, missing the stock market recovery in 03-04. I did not make any money by holding cash; in fact I lost money due to inflation. This time around, I am not making that mistake.

    The only question I have is: what are those stocks that one should buy and hold for a while?

    By the way, I am reading the “The snowball, warren buffet and business of life”, and I love it. Everything that Mr. Buffet is saying now, he has been saying since 1950’s and we all know that he has made a bundle of money. He definitely knows his stuff.

  6. Warren Buffett’s actions were, first of all, symbolic. I look for them to have a calming effect on the fear that is gripping the stock market. That’s what we need most of all. The average Joe- or Josephine-the-Plumber risks losing a lot more if the market just keeps going down or suffers these wild swings in highs and lows.

    We’ve become a nation of investors. Even someone with $10,000 in an IRA is probably invested in stocks through a mutual fund.

    As to whether a buy and hold strategy works, it depends. It depends on how long a period of time you’re holding, what you bought and what you paid for it. 🙂

    One thing I do know — if the market doesn’t rebound, we average Joes and Josephines will just lose money for sure.

  7. Last night, our local TV news station broadcast Henry Sy’s decision few years back then when he invested during the worst times here in the Philippines. It was indeed a very wise move, IMO, because he truly have invested stocks at a relatively low price. I believe Mr. Warren Buffet have same thoughts too.

  8. Buffett’s remarks give me a slight bit of confidence that things will get better, though would we expect him to do anything but speak positively since his wealth and reputation are all tied to the market? Not that most of us can do anything about it currently anyway.

    This recession/depression seems very different to me so I’ve been overly worried about the future, but will stay put as all my investments are retirement-related and I’ve got nearly 20 years before I need them. The reality is that all we can do is follow those who have gone before and hope that history, and the steady upward trend of the markets, will continue to repeat itself.

  9. Just an additional grace, Henry Sy today is considered as the richest man in the Philippines. Also, I’m wondering what is he up to with the Stock market today? I hope he too would do like Mr. Buffett did.

  10. Speaking of investing in America stock and real estate…I know some acquaintenances who tried to bid on a home (for cash) in AZ. Three other cash bids were offered – all pretty fair at about $325,000 on avg. on a formerly $500,000 listed home. All three cash bids were refused and the bank decided “to hold” the house for now, hoping for a better price in the future. Bailout money?

    Buying stocks for the average person still seems pretty risky – but I’m sure there will be some good deals. Buffet’s not buying at the average person’s price point of course so it’s kind of misleading for him to tell people to buy – and he has everything to win if he can GET people to buy.

    I like the idea of investing in harder assets because inflation is ongoing, resources are getting more expensive and the population rate seems to keep climbing.