• Warren Buffett laid out the four times Berkshire Hathaway shares got crushed.
  • He says these big drops show why investors should never use borrowed money.

Warren Buffett delivered his annual letter to Berkshire Hathaway shareholders on Saturday, and in it he laid out the “gory details” of the four times Berkshire shares got crushed.

“For the last 53 years, the company has built value by reinvesting its earnings and letting compound interest work its magic,” Buffett wrote. “Year by year, we have moved forward. Yet Berkshire shares have suffered four truly major dips. Here are the gory details:”

Buffett

Foto: source Berkshire Hathaway

All four of those big drops coincided with major market-moving events:

  • The 59.1% plunge from March 1973-January 1975 occurred when the US economy was mired in an ugly recession resulting from the oil crisis and fallout from the Bretton Woods agreement. The benchmark S&P 500 lost as much as 44% during that time.
  • The 37.1% drop during October 1987 happened after the Black Monday stock market crash. The S&P 500 bottomed out at a loss of 34%.
  • The 48.9% slide from June 1998-March 2000 occurred just ahead of the the dotcom bubble's burst. The S&P 500 actually gained 27% during this period.
  • The 50.7% plunge from September 2008-March 2009 occurred during the darkest days of the Great Financial Crisis. The benchmark S&P 500 fell 44% over this time.

So what advice does Buffett have to survive a market downturn?

"This table offers the strongest argument I can muster against ever using borrowed money to own stocks," Buffett wrote.

"There is simply no telling how far stocks can fall in a short period. Even if your borrowings are small and your positions aren't immediately threatened by the plunging market, your mind may well become rattled by scary headlines and breathless commentary. And an unsettled mind will not make good decisions."

Buffett concluded the big drops are great opportunities for those who are not loaded to the gills in debt. He ended the passage with these lines from Rudyard Kipling's 19th century poem, "If:"

"If you can keep your head when all about you are losing theirs . . . If you can wait and not be tired by waiting . . . If you can think - and not make thoughts your aim . . . If you can trust yourself when all men doubt you... Yours is the Earth and everything that's in it."