Warren Buffett’s 4 Time-Tested Methods for Surviving Economic Downturns
Written by
Brooke Barley
Edited by
Cory Dudak
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The chance of recession hitting the U.S. is 40%, according to a recent report from J.P.Morgan. Preparing yourself and having a plan to get through a recession is crucial. Therefore, who better to look to than billionaire Warren Buffett?
The “Oracle of Omaha” is known for his foresight, and has been a savvy investor for years in times of fortune and famine. His investments have consistently outpaced the S&P 500, according to Bloomberg.
How is Buffett taking steps to steel himself and Berkshire Hathaway for the rough times ahead? Read on to find out.
Don’t Panic
In a recent address to Berkshire Hathaway shareholders, Buffett said it’s important not to let your inner feelings sway your investments. “Check emotions at the door,” he said.
Buffett went on to say that if every drop has you worried, investing might not be a good strategy for you to take on. “If it makes a difference to you whether your stocks are down 15% or not, you need to get a somewhat different investment philosophy, because the world is not going to adapt to you. You’re going to have to adapt to the world.”
Start Saving Cash Now
At 94 years old, Buffett has seen many economic slumps in this country. He said in terms of historical context, the stock market we saw earlier this year isn’t particularly remarkable. In his stakeholder address, Buffett referenced the Dow Jones Industrial Average dropping 89% during the Great Depression. This drop was worse than what we’ve seen recently, however, and he warned that the future is what investors should be worried about. “You will see a period in the next 20 years that will be a hair curler compared to anything you’ve seen before.”
To protect yourself, Buffett recommended liquidating stocks now to have cash on hand before the market dips. Once it drops, he said to use the cash to buy stock and take advantage of the low prices. Buffett himself has been selling off stock recently, suggesting he’s getting ready for a major economic downturn.
Invest in What You Understand
According to Fast Company, Buffett said to invest in companies that you stand behind, not ones that you are following blindly. This way, you can make more informed decisions on how the company will do. Perhaps a company will actually offer consumers something recession-proof, or particularly valuable during a specific time (think Zoom during the pandemic). This helps ensure your portfolio doesn’t become obsolete in times of economic hardship, and will thrive during better times.
Know the Market Will Bounce Back
Investing is a marathon, not a sprint. Buffett’s marathon has been long, and he’s seen that behind every great downturn, the market does rebound. According to CNBC, after the market reaches a low, it’s an average of two years before stocks break even again.
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