What the Best Investors Did During Crashes
The difference between a great investor and an average one is most visible during a market crash. When prices are falling, news is terrifying, and the consensus view is that the world may be ending, the actions investors take determine the trajectory of their wealth for years or decades. The best investors in history did not merely survive crashes. They used them. They bought assets at prices that would have seemed absurd in calmer times, they held positions that required extraordinary conviction to maintain, and they emerged from each crisis with returns that compounded their long-term advantage over the crowd.
Studying what great investors actually did during periods of panic, not what they said afterward in speeches and interviews, but what they did with real money in real time, provides the most practical education in crisis investing available.
Warren Buffett: "Be Greedy When Others Are Fearful"
Buffett's most quoted maxim is "be fearful when others are greedy and greedy when others are fearful." Unlike many market aphorisms, this one is backed by a documented record of action.
During the 2008 crisis, Buffett deployed Berkshire Hathaway's capital at the height of the panic. On September 23, 2008, eight days after Lehman Brothers' bankruptcy, Buffett invested $5 billion in Goldman Sachs preferred stock yielding 10% annually, with warrants to purchase $5 billion in common stock at $115 per share. Three weeks later, he invested $3 billion in General Electric on similar terms. Both investments were made when the financial system appeared to be collapsing and when most investors were liquidating anything connected to finance.
On October 17, 2008, with the S&P 500 in freefall, Buffett published an op-ed in the New York Times titled "Buy American. I Am." He wrote: "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." He disclosed that he was moving his personal portfolio from 100% government bonds to 100% American equities.
The Goldman Sachs investment alone earned Berkshire approximately $3.7 billion in profit. The GE investment was also highly profitable. His broader equity purchases during the crisis period contributed significantly to Berkshire's subsequent outperformance.
During the COVID crash of 2020, Buffett's behavior was notably different. Berkshire Hathaway was a net seller of equities during the first quarter of 2020, selling $6.1 billion more in stocks than it purchased. At the May 2020 annual meeting, Buffett acknowledged selling his entire airline stock portfolio at a loss. Critics argued that the 89-year-old had lost his touch. Defenders noted that the COVID crisis was fundamentally different from 2008: the uncertainty was not about asset valuations but about whether the global economy would function at all. By late 2020 and into 2021, Berkshire began deploying cash more aggressively, purchasing significant stakes in Chevron, Verizon, and Occidental Petroleum.
The lesson from Buffett's crisis behavior is not that he always bought at the exact bottom. He did not. The lesson is that he maintained the financial position (Berkshire's enormous cash reserves) and the psychological position (decades of experience and emotional discipline) that allowed him to act when others could not.
John Templeton: Buying at Maximum Pessimism
Sir John Templeton, who built one of the largest mutual fund empires of the 20th century, explicitly organized his investment strategy around crisis buying. His most famous maxim was: "The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell."
In 1939, as World War II began and the financial world feared the worst, Templeton bought 100 shares of every stock trading on the New York Stock Exchange at $1 per share or less. This required approximately $10,000 (borrowed) and resulted in the purchase of 104 companies, 34 of which were in bankruptcy. Over the next four years, only four of the 104 companies became worthless. The rest recovered, and Templeton turned his $10,000 into approximately $40,000, quadrupling his money during one of the most frightening periods in modern history.
During the Korean War panic of 1950, when markets sold off on fears of a wider conflict, Templeton again bought aggressively.
In the early 2000s, after the dot-com crash, Templeton (then in his 90s) shorted a basket of internet stocks just before their lockup expirations, profiting from the post-IPO selling. He reportedly earned over $80 million from the trade.
Templeton's approach was systematic. He maintained a "wish list" of stocks he wanted to own and the prices at which he would buy them. When a crash drove prices to his target levels, he executed immediately, without hesitation. The advance preparation was the key. By the time the crisis arrived, the analytical work was done. All that remained was execution.
Howard Marks: The Memo Writer
Howard Marks, co-founder of Oaktree Capital Management, is known for his investor memos, which have provided real-time commentary on market conditions for over three decades. Oaktree, which specializes in distressed debt, is built to profit from crises.
In September 2008, as the financial system was collapsing, Marks published a memo titled "Nobody Knows" acknowledging the extreme uncertainty. But he followed it days later with "Now What?" in which he argued that credit markets were pricing in a degree of loss that was unlikely to materialize. Oaktree deployed approximately $6 billion in distressed debt between September 2008 and March 2009, purchasing corporate bonds at 50 to 70 cents on the dollar.
The returns on these investments were extraordinary. Many of the bonds recovered to par (100 cents on the dollar) within one to two years, producing returns of 50% to 100%. Oaktree's distressed debt fund launched in 2007 generated a net return of over 30% annualized.
Marks has articulated his crisis investment philosophy in a principle he calls "calibrating your risk stance." The idea is that investors should increase their risk exposure when prices are low and sentiment is negative, and decrease it when prices are high and sentiment is euphoric. This sounds obvious but is psychologically the opposite of what most people do, because taking risk feels safe when prices are high (everything has been going up) and terrifying when prices are low (everything has been going down).
Seth Klarman: Patient Capital, Aggressive Deployment
Seth Klarman, founder of the Baupost Group, is one of the most successful value investors of the past four decades. Baupost is known for holding large cash positions during calm markets (sometimes 30-50% of the portfolio) and deploying that cash aggressively during dislocations.
During the 2008-2009 crisis, Baupost invested heavily in distressed debt, mortgage-backed securities, and corporate loans. Klarman reportedly purchased billions in face value of distressed assets at deep discounts. Baupost's annual returns during and after the crisis significantly outperformed the market.
Klarman's approach embodies a principle he has articulated repeatedly: the opportunity cost of holding cash is low when markets are expensive, because the expected returns from deploying that cash into overpriced assets are poor. The opportunity cost becomes high only when markets crash and assets become genuinely cheap. At that point, the investor with cash has an enormous advantage over the investor who is fully invested and watching their portfolio decline.
The willingness to hold cash and accept the criticism of underperformance during bull markets, in exchange for the ability to buy during panics, is one of the most difficult disciplines in investing. It requires explaining to investors why the fund is "sitting on cash" when markets are going up, and it requires the conviction to deploy that cash when everything appears to be going wrong.
Benjamin Graham: The Intellectual Foundation
Benjamin Graham, the father of value investing, personally experienced the 1929 crash, which nearly destroyed his investment partnership. The experience shaped his entire investment philosophy.
Graham lost approximately 70% of his capital between 1929 and 1932. Rather than abandoning the stock market, he spent the next several years developing the analytical framework that would become value investing. His 1934 textbook "Security Analysis," co-authored with David Dodd, was written in the depths of the Depression and was fundamentally a response to the crash: a systematic method for evaluating securities based on their measurable financial characteristics rather than on market sentiment.
Graham's subsequent investment record was built on the principles he developed in response to the crash. The Graham-Newman Corporation, which he managed from 1936 to 1956, earned an average annual return of approximately 14.7%, significantly outperforming the market. His most famous investment, GEICO, was purchased in 1948 at a time when the insurance company was obscure and unloved.
Graham's contribution to crisis investing was not a single trade or a single crisis. It was the development of a framework, centered on the concepts of intrinsic value, margin of safety, and the "Mr. Market" allegory, that gave investors the intellectual tools to remain rational during periods of panic. Every investor mentioned in this article was influenced by Graham's ideas, either directly (Buffett was Graham's student) or through the broader intellectual tradition he established.
Paul Tudor Jones: The Trader's Approach
Not all great crisis investors are long-term value investors. Paul Tudor Jones, a macro trader, earned a 125.9% return in October 1987 by correctly anticipating the Black Monday crash and positioning his portfolio accordingly.
Jones studied the 1929 crash in detail and noticed parallels with the market conditions of late 1987: rapid price appreciation, excessive speculation, and a market that was technically overextended. He built a short position in stock index futures before the crash and profited enormously as the market fell 22.6% in a single day.
The Jones approach is fundamentally different from the Buffett or Templeton approach. Rather than buying during panics, Jones anticipated the panic and profited from it. This requires a different skill set: pattern recognition, timing, and the willingness to take concentrated short positions. It is an approach that very few investors can replicate consistently, but it demonstrates that there are multiple paths to profiting from crises.
Common Principles
Despite their different styles and time periods, the investors discussed here share several common characteristics in their crisis behavior.
Preparation before the crisis. They maintained cash reserves, watchlists, and analytical frameworks that allowed them to act quickly when opportunities appeared. They did not start their analysis after the crash. They had been analyzing potential investments for months or years.
Emotional independence. They acted contrary to the consensus. When everyone was selling, they were buying. When the financial media was predicting the end of capitalism, they were deploying capital. This requires not just intellectual conviction but a psychological constitution that is comfortable standing apart from the crowd.
Financial capacity to act. Each investor had the cash, the credit, or the portfolio flexibility to deploy capital during the crisis. An investor who is fully invested or leveraged when the crash arrives, no matter how brilliant their analysis, cannot buy at the bottom because they have nothing to buy with.
Focus on value, not price. They bought assets because those assets were cheap relative to their intrinsic value, not because they thought the price had bottomed. None of them called the exact bottom. They bought at prices that offered adequate returns over a multi-year horizon and accepted that prices might decline further before recovering.
The history of great investors during crashes is ultimately a history of preparation, discipline, and the willingness to act on conviction when action feels most dangerous. The principles are simple. The execution is extraordinarily difficult. And the rewards, compounded over decades, are what separate the best investors from everyone else.
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