Why Market Downturns Are the Best Time to Invest (If You Know How)

Are We in a Downturn or Just Getting Started?

I want to dig into the hot topic on everyone’s mind: the current stock market correction. Is this just a short-term dip, or are we on the edge of a major downturn? More importantly, how can we as long-term, Rule #1 investors use this moment to make smart, potentially life-changing investments?

The market has been on a rollercoaster. The S&P 500 recently dropped as much as 19%—nearly bear market territory—before partially rebounding. Big tech names like Tesla, Apple, and Nvidia have taken massive hits, some dropping over 30%. Meanwhile, the VIX (volatility index) has surged to levels we haven’t seen since the pandemic crash or even the 2008 crisis.

So, what’s driving all this turmoil? And what should you and I be doing about it?

Why the Market Is Volatile Right Now

One major driver is policy—specifically, trade policy. With the return of President Trump, we’ve seen tariffs escalate sharply, like the U.S. imposing up to 145% tariffs on Chinese imports and China responding with tariffs of up to 125% on American goods.

This trade war is disrupting global supply chains and increasing costs for companies. Take Ford and GM—even though they assemble cars in the U.S., around 60% of their parts come from countries like China or Mexico. With tariffs, they’re forced to either absorb costs and shrink profits or raise prices and risk losing customers.

It’s not just automakers. About 41% of S&P 500 company sales come from overseas. If foreign governments retaliate, American products become more expensive abroad, shrinking profits further.

Even giants like Apple are exposed. They not only manufacture in China but also sell heavily into that market. Apple’s market cap has already dropped about 30%, showing how even the best businesses are vulnerable to short-term shocks.

How Rule #1 Investors Should Respond

Here’s the key: stay calm, stay rational.

Market corrections happen all the time. As Warren Buffett says, 

“Be fearful when others are greedy and greedy when others are fearful.”

Right now, I’d argue we’re in a greedy market. The S&P 500’s price-to-earnings (PE) ratio is around 27x, compared to its long-term average of 16x. Buffett’s famous Wilshire-to-GDP ratio—a measure of overall market valuation—sits around 177%, far above his “playing with fire” threshold of 120%.

Buffett’s not ignoring this. He’s sitting on $350 billion in cash, about 4x his usual reserve.

So, what should we do? Here’s my playbook:

1. Sell Into Greed

When the market is greedy, take profits on overvalued stocks. Don’t just blindly “hold on forever”—that’s not what Buffett or I do.

2. Build Your Watchlist

Look for durable, undervalued businesses. Focus on companies with:

• Strong brands

• Loyal customers

• Pricing power

• Low debt

• Simple, understandable business models

Look for anti-fragile companies—businesses that aren’t deeply exposed to global supply chains or China.

3. Keep Cash Ready

We want to be holding cash when the market “starts raining gold,” as Buffett puts it—and we want a wash tub, not a thimble. Don’t try to perfectly time the bottom. Instead, plan to buy in stages (tranche investing):

• Buy 25% of your desired position when you see a margin of safety

• Hold 75% back to average down if prices fall further

4. Stick to the Four Ms

Never forget the Four Ms:

• Meaning: Do you understand the business?

• Moat: Does it have a durable competitive advantage?

• Management: Is the leadership trustworthy and capable?

• Margin of Safety: Are you buying at a discount to intrinsic value?

If you’re ready to learn exactly how to apply Rule #1 investing in this volatile market, join me and my team at our next live virtual investing workshop. You’ll learn everything you need to become a confident Rule #1 investor.