Warren Buffett Bear Market Advice: It was big news when the bear market became official in June 2022. The media reported on the milestone in alarmed tones, and there was plenty of speculation that a recession wouldn’t be far behind.
Investors were already skittish, and the news amplified their concerns. Many eased their fear of further losses by selling higher-risk growth stocks and moving their money into safer, less volatile assets.
Did they make the right move?
There is something to be said for cutting losses when a stock drops in value, but unloading an entire portfolio at a loss during market downturns is a mistake. Billionaire investor Warren Buffett’s bear market advice can be summed up in a single quote: be fearful when others are greedy, and greedy when others are fearful.
In other words, trading on emotion isn’t the way to get ahead. Instead, the best investors take advantage of the opportunities available when less-sophisticated investors sell out of fear or buy based on unfounded exuberance.
Warren Buffett’s Strategy
Warren Buffett has been trading stocks for more than 80 years. His very first purchase took place when he was 11, and he learned an important lesson that stuck with him for the rest of his career.
After buying his first shares, he became concerned that the stock would lose value. He sold out of fear before realizing any profit. Then, he watched as the price went up and saw that he had missed out on gains by trading on emotion.
Since then, Buffett has stayed true to a simple, highly-effective strategy that boils down to two core principles: buy high-quality stocks and hold them for as long as possible.
How Does Warren Buffett Pick Stocks?
When choosing stocks for his portfolio, Buffett begins by examining a company’s fundamental strengths and weaknesses to ensure he only buys high-quality stocks.
Yes, share prices might fluctuate based on market conditions, but that doesn’t matter to Warren Buffett if the business is sound. He knows that when the company has a wide moat, solid financials, and strong management, it can withstand temporary setbacks and return to profitability over time.
Some of the factors that play into Buffett’s evaluation of a business include performance over time.
- Has the company demonstrated an ability to endure through standard economic cycles?
- Does it have the resources to survive a significant market downturn?
Perhaps most importantly:
- does it have debt under control, and
- does it have to borrow to pay its bills during tough economic times?
All of those details are considered when Buffett evaluates a company’s intrinsic value, then compares that intrinsic value to the actual share price. Buffett doesn’t overpay for any asset he buys and is known for securing undervalued shares before the larger market discovers them.
When Is The Best Time To Sell Stock According To Warren Buffett?
The second step in Warren Buffett’s investment strategy is to hold shares long-term. Since he only buys high-quality stocks, he is confident that his portfolio will recover from any damage inflicted by a bear market, even if that bear market turns into a recession.
One of his most often repeated quotes speaks directly to that philosophy: If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.
Buffett is known for his loyalty to companies that have demonstrated long-term excellence. For example, he is a strong advocate for Coca-Cola. Buffett started adding shares of Coca-Cola to his portfolio in 1988, and between rising share prices and generous dividends, his total investment in Coca-Cola has grown to $23 billion.
Warren Buffett doesn’t sell stock because of a gloomy economic forecast. In fact, he doesn’t sell at all unless there is a clear reason to divest a specific company.
If he learns of a change in leadership or strategy that has the potential to negatively affect the company’s long-term success, he might consider trading in his stock. Still, he doesn’t allow the fear that accompanies a bear market to alter his plans.
It is far more likely that Warren Buffett will buy stock during a bear market. After all, low prices lead to higher overall returns. Even the best-managed companies lose value when the stock market is down, so shares are available at discounted prices.
The market has always recovered from past bear markets in a phenomenon that Buffett calls the American Tailwind. Buffett believes in American ingenuity and is confident that bear markets will always become bull markets if given enough time.
What Are Warren Buffett’s Market Predictions?
Warren Buffett knows that the stock market is unpredictable in the short term, and his success notwithstanding, he doesn’t claim to have any special insight. Anything can happen over a few months – or a few years – including unexpected events like natural disasters, wars, and pandemics.
However, Buffett knows that every bear market has eventually become a bull market, and he has said on multiple occasions that the 2022 bear market will be no different. Warren Buffett believes a bull market is coming, perhaps sooner than anyone realizes, given current economic conditions.
Does Buffett know exactly when stock prices will go up? No, of course not. But he does know that eventually, the stock of high-quality companies will rise. He believes now, while prices are low, is the right time to snap up shares of top-performing businesses.
Warren Buffett Stocks
Warren Buffett rarely gets involved in start-ups and IPOs, because they can’t offer the performance history he considers key to evaluating quality.
His followers were surprised when his holding company, Berkshire Hathaway, participated in Snowflake’s 2020 IPO because the move was such a rarity.
It was later determined that though he approved the purchase, he didn’t make the initial decision to invest. Even then, Snowflake stock makes up less than one-half of one percent of Berkshire Hathaway’s total holdings.
Most of Berkshire Hathaway’s portfolio consists of industry leaders in technology, financial services, and consumer staples. On the tech side, Buffett generally sticks with proven companies with a strong competitive edge. He prefers tech stocks that provide high-demand products and services rather than new, untested innovators.
Warren Buffett’s top ten holdings include:
Apple – 40 percent
Bank of America – 10 percent
Chevron – 9 percent
Coca-Cola – 8 percent
American Express – 7 percent
Kraft Heinz – 4 percent
Occidental Petroleum – 4 percent
Moody’s Corporation – 2 percent
Taiwan Semiconductor – 1.5 percent
BYD Co. – 1.5 percent
Many investors don’t stick to Warren Buffett’s value strategy. They favor higher-risk alternatives that have potential to deliver short-term profits. However, whether or not they choose to align their personal strategies with Buffett’s, there is no denying that Warren Buffett’s investment strategy works.
Warren Buffett, net worth $106 billion, is widely considered one of the most successful investors of all time, and he credits much of his success to embracing bear markets.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.