Warren Buffett's Top Crash-Survival Strategy Has 98 Years of History Behind It

The market hasn't had to deal with an outright stock market crash in a long time. The closest recent comp is probably the COVID-19 pandemic bear that saw the S&P 500 (SNPINDEX: ^GSPC) lose around 34% of its value in just over a month.

The next market crash may or may not come soon. But history has shown that another one will happen eventually. Investors probably won't help themselves by trying to predict the next big decline, but they can prepare mentally by developing a plan for how they will deal with it while market conditions are still good.

When developing such a plan, famed investor Warren Buffett is usually a good person to look to for guidance. Over the years, he has offered multiple bits of advice on just this topic. For example, during the 2008 financial crisis, he wrote that there is one simple rule that guided his trading: "Be fearful when others are greedy and be greedy when others are fearful."

Nearly a century of stock market history strongly suggests Buffett is right.

Warren Buffett. Image source: Getty Images.

Bear markets tend to reward patience

Bear markets are understandably uncomfortable, but consider the actual numbers around them:

• There have been 27 bear markets since 1928. On average, they've lasted 9.6 months. The average bull market, however, has lasted 2.7 years, nearly three times as long.
• The average bear market loss is 35%. The average bull market gain is 112%.
• Following the 18 biggest market declines since the Great Depression, the S&P 500 was higher five years later in each case. Annual returns over those five-year periods averaged more than 18%.
• Roughly 42% of the S&P 500's strongest days in the past 20 years occurred during a bear market. Another 36% of the market's best days took place in the first two months of a bull market.

The biggest takeaway from these statistics is that some of the market's best forward returns come during or just following the depths of a bear market. Most investors are looking for reasons to avoid equities after they've dropped by more than 20%. But when things turn, they turn fast. And that's where some of the biggest short-term returns can be had.

How to put Buffett's advice into practice

If you're going to be greedy when others are fearful, you need to keep investing through the downturns.

If you become one of the fearful, there's a good chance that you'll be selling after stocks have fallen. That usually just does two things -- you lock in losses after they've already happened, and you miss out on the gains after the recovery has started.

Crashes are scary, but they can also present some of the best buying opportunities. Focusing on your long-term goals is usually the best course of action.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.