Warren Buffett Has 1 Piece of Advice for Investors Worried About a Crash, and History Proves It Works

Investors are afraid. That's the conclusion of CNN's Fear and Greed Index. The index incorporates seven indicators, including market momentum, stock price strength, and market volatility. CNN's index has spent most of the last two months hovering between a level of "fear" and "extreme fear."

Warren Buffett has one piece of advice for investors worried about the stock market and a potential crash. And history proves it works.

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Warren Buffett. Image source: Getty Images. Image source: Getty Images.

Buffett said in a 2016 interview with CNBC, "The money is made in investments by investing, and by owning good companies for long periods of time." Those 18 words pack a powerful punch.

The first part of Buffett's statement might seem unnecessary. It only makes sense that the way to make money in investments is to actually invest. However, one of the biggest mistakes investors make is staying on the sidelines. Wayne Gretzky echoed Buffett's sentiment with his observation about playing hockey, "You miss 100% of the shots you don't take."

Note that Buffett didn't say to buy the hottest growth stock on the market. He emphasized "owning good companies." What does it take for a company to measure up? Consistent financial performance, a durable economic moat, a strong (and honest) management team, and a reasonable valuation rank at the top of the list.

Importantly, though, Buffett doesn't think most people should try to pick individual stocks. He told CNBC in a 2017 interview, "The trick is not to pick the right company. The trick is to essentially buy all the big companies through the S&P 500 (SNPINDEX:^GSPC) and to do it consistently."

The legendary investor also stressed holding investments for a long time. How long did he mean? Buffett wrote to Berkshire Hathaway (NYSE:BRKA) (NYSE:BRKB) shareholders in 1989 that his "favorite holding period is forever." He qualified that statement, though, by saying that it applied only to "outstanding businesses with outstanding managements."

Again, though, buying an S&P 500 index fund, such as the Vanguard S&P 500 ETF (NYSEMKT:VOO) or the State Street SPDR Portfolio S&P 500 ETF (NYSEMKT:SPYM), doesn't require an investor to determine whether a business is outstanding or has an outstanding management team. Companies that succeed (based on retaining a high market cap) remain in the S&P 500 index with a greater weight, while those that don't see their weight decline, and they may even eventually get replaced.