Warren Buffett Has 1 Rule for Investing During Volatility, and It's More Important Than Ever Right Now

A famous investing strategy quote from Warren Buffett is: "Be fearful when others are greedy and greedy when others are fearful." The legendary investor achieved a 5.5 million percent return over 60 years as CEO of Berkshire Hathaway, and he was known for deploying cash into the stock market at the very moments when other investors were too afraid to act.

Everyday people who aren't billionaire CEOs don't have the same level of financial resources or the same kinds of investment goals as Buffett in his Berkshire Hathaway heyday. But almost anyone can learn from his approach to investing during times of crisis, panic, and stock market crashes.

Let's look at what Warren Buffett meant by "being greedy when others are fearful," and how to put this mindset to work in your investing life.

Buffett: Greedy during times of panic

Bear markets are often the best time to buy stocks, because "stocks are on sale." After (or during) a stock market crash, you can often buy shares in great companies at vast discounts, simply because other investors are afraid to put money into the market at their usual levels.

Some of Buffett's biggest bear-market investments were in 2008 during the global financial crisis. That year, the S&P 500 index (SNPINDEX: ^GSPC) delivered a 38.5% loss. Investors were running for the hills and capital was scarce. But Buffett stepped in to invest where others feared to tread.

He invested billions of dollars in 2008 in companies like Goldman Sachs and Bank of America. These and other investments during that time of global crisis helped Buffett's Berkshire conglomerate earn more than $10 billion in profits by October 2013, according to reporting from The Wall Street Journal and CNBC. But Buffett didn't believe he had done anything too special. As he told the Journal:

In terms of simple profitability, an average investor could have done just as well investing in the stock market if they bought during the panic period. You make your best buys when people are overwhelmingly fearful.

Consider buying more stocks during a sell-off

Many people invest about the same amount of money in the stock market each month, much like their regular contributions to a retirement account. But you can be like Warren Buffett by putting extra cash to work. By the end of Buffett's career as CEO, Berkshire had a massive cash pile of about $370 billion. Buffett believed in keeping cash on hand to use as "dry powder" for good investment opportunities.

You don't need to have $370 billion of cash to follow Buffett's strategy here. Just think about what you'd do with some extra cash during a bear market. If the S&P 500 went down by 5% or 10% or more, do you have an extra few hundred dollars a month that you could deploy into the stock market? Try to take advantage of the "sale" on stocks. What if you get a one-time windfall like an annual cash bonus at work, gifts from relatives, or an inheritance? If the news headlines are full of fear about the stock market, you could put that extra cash to work by buying more stocks.

Hold onto your stocks for the long term

Perhaps the most underappreciated aspect of Buffett's success is that he kept investing consistently for 60 years. He didn't just "get greedy" and buy more stocks at the right moments, when the market was crashing and others were too fearful. He also held onto lucrative investments for decades of long-term compounding.

You don't have to be a billionaire or a once-in-a-generation stock picker like Buffett to benefit from this long-term investing approach. More modest amounts of money could grow to surprising levels over 60 years. For example, the S&P 500 index has delivered an average annual return of 9.98% over the past 98 years. The Vanguard S&P 500 ETF (NYSEMKT: VOO) has delivered even better returns of 15% over the past 10 years.

Imagine that you invested $500 per month in low-cost index funds like VOO for 60 years, earning an average annual return of 9.98%. After 10 years of consistent investing, you'd have $95,533. After 20 years, you'd have $342,870. After 30 years, you'd have $983,235. After 40 years, you'd have $2.64 million. After 50 years, you'd have $6.93 million. And after 60 years -- almost as long as Buffett spent as CEO of Berkshire Hathaway -- your investments would grow to about $18.05 million.

Bank of America is an advertising partner of Motley Fool Money. Ben Gran has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, Goldman Sachs Group, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.