Warren Buffett Stock Market Prediction: It’s been a rough 18 months for investors. The market experienced extreme highs and lows, and then some industries recovered while others languished. Now that nearly all sectors are getting back on track, there are new worries. Inflation is on the rise, and the pandemic continues to ravage less-developed areas of the world. Political turmoil in the United States has lawmakers deadlocked, and geopolitical tensions have everyone a little on edge.
Investing under these conditions is not for the faint of heart. Even the most sophisticated market experts aren’t sure what to do next. However, sticking with super-safe assets or leaving large portions of portfolios in cash and cash equivalents isn’t usually the answer. A better option is to consider the advice of those who have been through all sorts of market conditions – the ones who survived and thrived when everyone else went bust.
Warren Buffett, affectionately known as the “Oracle of Omaha”, has led his holding company Berkshire Hathaway for more than 50 years. In that time, he has grown his wealth to more than $100 billion, and he has supported his shareholders in creating sizable portfolios of their own.
When Warren Buffett talks, people listen. This is some of his best advice, as well as the official Warren Buffett stock market prediction for the foreseeable future.
Warren Buffett Recommends S&P 500
Picking the next Apple or Amazon would certainly be a win, but for the average investor, this isn’t a practical strategy. Solid research can guide investment decisions, but ultimately, there are no sure things on Wall Street. Even the most promising stocks can fizzle out, diminishing your wealth along the way.
Instead of betting on individual securities, Warren Buffett recommends the S&P 500. Specifically, he suggests buying index funds that are designed to mirror the S&P 500, as these add stability and, in theory, reliable returns to your portfolio.
True, the S&P doesn’t carry any more of a guarantee than other investments, but its history lends a sense of security. The index has its ups and downs, but over time it has always increased in value. In the decades since its inception, it has returned an average of 10 percent per year.
In a shareholder’s meeting, Buffett said:
In my view, for most people, the best thing to do is owning the S&P 500 index fund. If you bet on America and sustain that position for decades, you’d do far better than buying Treasury securities, or far better than following people. Perhaps with a bias, I don’t believe anyone knows what the market is going to do tomorrow, next week, next month, next year.
The S&P 500 launched in 1957, and it is composed of the 500 largest US-based companies. At the moment, the top five in the S&P 500 include Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Facebook (FB), and Alphabet (GOOG). Each share of an S&P 500 index fund offers instant diversification, exposing you to the returns generated by the nation’s biggest movers and shakers.
Examples of popular S&P 500 Index Funds include:
- Fidelity ZERO Large Cap Index (FNILX)
- iShares Core S&P 500 ETF (IVV)
- Schwab S&P 500 Index Fund (SWPPX)
- SPDR S&P 500 ETF Trust (SPY)
- Vanguard S&P 500 ETF (VOO)
Warren Buffett: Currency Devaluation
A weak US dollar sounds like a bad thing, but currency devaluation is often deliberate. When the US dollar is worth less compared to the currencies of other nations, US goods and services are more competitive in the global marketplace. One common trigger for currency devaluation is the transfer of large amounts of capital out of the country. Another is a glaring trade deficit, in which the US is importing far more than it is exporting.
The trouble with currency devaluation is that it tends to create the ideal conditions for inflation – and as every investor knows, inflation chips away at buying power, putting principal at risk.
Warren Buffett has said on more than one occasion that the answer is to skip long-term fixed-dollar investments – for example, 10-year US Treasury bonds. Instead, focus on companies that will profit from a weak US dollar – and perhaps from inflation – so that your wealth grows alongside these changes.
Warren Buffett: Stay Invested
Even if you do everything right and you create a portfolio that grows in value year after year, there is a huge loss looming. The second you sell, you become liable for taxes on your gains – and that tax liability can dramatically impact your overall returns.
If you own an asset such as stock for one year or less, any profits are taxed as regular income. That means you will pay anywhere from 10 percent to 37 percent in taxes, depending on your tax bracket. While taxes aren’t quite as high for long-term investments – those you own for more than a year – the amount you must pay can still reduce your profits considerably.
Under current tax law, that can be up to 20 percent of your profits – and that doesn’t include any state taxes.
The issue doesn’t end with the tax code that is on the books today. These laws change regularly, and there is a new proposal on the table right now. If passed into law, the new regulation would require individuals with an income of $1 million or more per year to pay 39.6 percent in taxes on long-term capital gains.
There is only one foolproof method of holding taxes at bay, and Warren Buffett makes sure he shares the technique far and wide: stay invested. In other words, you don’t owe taxes until you sell your assets. If you leave your investments untouched, you don’t lose profits.
Warren Buffett: Buy What You Know
Warren Buffett’s success is so remarkable that many investors assume it can’t be replicated. They imagine that he has secret formulas and proprietary algorithms that precisely predict the movement of individual stocks and the market as a whole.
In fact, nothing could be further from the truth. Yes, Buffett has above-average experience and skill, which has propelled him to massive success. However, his strategies are simple and straightforward. One of the clearest examples is his constant refrain, “Buy what you know.”
In discussion after discussion, Buffett tells investors that jumping into market trends is a terrible move. Buying and selling shares based on rumors and possibilities is a mistake – especially when the companies involved have complex products, services, and business models.
Instead, Buffett promotes the practice of keeping investments simple. He recommends buying shares in companies that make products and services you understand through business models that make sense.
For example, Berkshire Hathaway owns companies like Fruit of the Loom, Dairy Queen, and GEICO insurance. They are basic – nothing unusual about how they are structured, what they sell, and how they market and distribute their products. They are simply solid companies with reputable products that have earned the loyalty of their customers over decades of hard work.
Warren Buffett Stock Market Indicator
Through Berkshire Hathaway, Warren Buffett invests in reliable companies that he can get at a good value. His entire strategy is built on simplicity, so it comes as no surprise that his market predictions are, too.
Buffett doesn’t rely on complex indicators that require complicated calculations. Instead, the “Warren Buffett stock market indicator” is this: the total value of the market divided by the size of the economy – or total market cap/GDP.
Buffett has been talking about this indicator for decades. In 2001, he said it is “probably the best single measure of where valuations stand at any given moment.” That’s why when the so-called “Buffett indicator” hit 200 percent in early June 2021, investors everywhere began rethinking their next move.
Is Warren Buffett Buying or Selling?
While no one knows exactly what Warren Buffett is doing until Berkshire Hathaway publishes its quarterly reports, based on his first-quarter activity and the current state of the market, most analysts believe that Buffett is more focused on selling than buying at the moment.
In the first quarter of 2021, Berkshire Hathaway sold $6.45 billion in stock and bought just $2.57 billion. What Berkshire Hathaway bought and sold is even more interesting than the volume.
The company invested heavily in Verizon, and it grew its holdings of T-Mobile (TMUS), Merck (MCK), Abbvie (ABBV), Bristol-Myers Squibb (BMY), and Kroger (KR). Meanwhile, it closed out of Pfizer, along with a list of financial companies that includes Barrick Gold, JPMorgan Chase, M&T Bank, and PNC Financial.
What’s he doing with the proceeds from these sales? Among other things, he is buying back Berkshire Hathaway stock. The company repurchased $6.6 billion of its own shares.
Warren Buffett Stock Market Prediction
While Warren Buffett’s stock market prediction isn’t a guarantee, decades of experience and unmatched success give his guidance more weight than most. In the short-term, Buffett has indicated that he believes a downturn – perhaps even a crash – is coming.
However, if there is one thing he is sure of, it is this: sooner or later, the market will rebound, and it will come back stronger than it was before any downturn. This pattern has played out again and again – what goes down must come up.
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.