Whispers of a looming recession have been making the rounds for well over a year now, and don’t appear to be going away anytime soon. Despite the resilient economy and low unemployment, a recent column in Forbes still predicted a “mild recession” in late 2023 or 2024.
If that’s the case, get ready to invest in the stock market – but only if you want to follow the lead of Warren Buffett, the mega-billionaire CEO of Berkshire Hathaway. As Buffett famously wrote in a 2008 op-ed for The New York Times: “Be fearful when others are greedy, and be greedy when others are fearful.” This essentially means that when others are fearful of investing money — like ahead of or during a recession — you should take advantage by scooping up stocks and other assets at discount prices.
“In short, bad news is an investor’s best friend,” Buffett wrote in the op-ed. “It lets you buy a slice of America’s future at a marked-down price.”
That rule is still as relevant now as it was 15 years ago, during the height of the Great Recession. What you don’t want to do is sit around trying to predict when the economy and stock market will recover because even experts like Buffett can’t do that.
“I haven’t the faintest idea as to whether stocks will be higher or lower a month or a year from now,” Buffett wrote. “What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So, if you wait for the robins, spring will be over.”
Before a recession hits, here are five things Buffett recommends doing.
As Motley Fool reported, Buffett told CNBC’s Becky Quick earlier in 2023 that his strategy ahead of a recession is to “keep plenty of cash on hand so that people are going to keep making intelligent decisions rather than those forced upon them.” Although you can’t amass billions in cash like Berkshire Hathaway, you can take steps like avoiding assets that might tie up your cash.
Put Your Money Into Proven Companies
During economic downturns and stock-market slumps, blue chip stocks suffer like anything else, so you might be wary of investing in a company that has seen a slowdown in business and slump in its share price. But as Buffett pointed out, that’s usually only a temporary hiccup.
“Most major companies will be setting new profit records 5, 10 and 20 years from now,” he wrote.
Stick With the Normal Game Plan
Buffett told CNBC that he believes in taking a “business-as-usual” approach before a recession.” You don’t want to suddenly stop investing, but you don’t want to go overboard with it either by gobbling up a bunch of stocks you wouldn’t otherwise.
“We just wanna buy good businesses run by people we like and trust and at a decent price,” Buffett told CNBC. “And we’ll keep doing that.”
Avoid Putting All Your Money Into No-Growth Assets
It’s tempting to seek a safe financial harbor before a recession by keeping all or most of your money in risk-free checking and savings accounts, where it will likely have little to no growth potential. But as Buffett wrote for the NYT, equities will “almost certainly outperform cash over the next decade, probably by a substantial degree.”
Keep a Long-Term Outlook
Some recessions last longer than others, but all are temporary. In contrast, the stock market has a decades-long pattern of rising over time. This was the case following the Great Depression of the 1930s, the economic doldrums and soaring inflation of the 1970s and early 1980s, the Great Recession of 2007-09, and the COVID-19 pandemic earlier this decade.
Don’t panic if you see your investments go down before and during a recession. Instead, maintain the Buffett mindset that the stock market will go up again — because history has proven that it always does.
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