Prediction: A Bear Market Is Coming. Here’s Warren Buffett’s Best Advice to Prepare for Volatility
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Warren Buffett, the famous former CEO of Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB), never wrote an investing book. Instead, he peppered investment wisdom into the annual reports of the company he ran, and let his thoughts slip into the interviews he conducted. What was most notable is that he didn’t give specific stock advice; he provided broad guidance.
If you think there’s a bear market on the way (give it enough time, and one will, with 100% certainty, eventually arrive), then these three pieces of Buffett wisdom could help you not just weather the storm, but use it to your advantage.
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The Buffett quotes to live by in a bear market
Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.
The key to investing isn’t to focus on being the smartest person in the room. While that may not hurt, it isn’t the whole story. If you are smart, but let your emotions get ahead of you, you are likely to think short-term and make mistakes that hurt your long-term performance. That’s a huge risk in a bear market, given that fear will be high on Wall Street.
Successful long-term investors have to step back, heed Buffett’s advice, and remember that every bear market has eventually been followed by a bull market. And those bull markets have historically driven the market to new heights. A bear market isn’t the end of the world; it is just a normal part of investing.
Our favorite holding period is forever. We are just the opposite of those who hurry to sell and book profits when companies perform well but who tenaciously hang on to businesses that disappoint.
Buffett liked to buy good companies when they traded at attractive prices. But the real magic was his willingness to hold for the long term. His goal was to benefit from a business’s growth over time, which can only occur if you buy a stock and hold it. This is sage advice for a bull market or a bear market, but it is particularly important in a downturn.
What you don’t want to do is sell a good business just because the market is going down. If it is a good business, it will survive and, perhaps, even thrive during the downturn. If you are being as selective as Buffett, a bear market shouldn’t be enough to ruin your investment thesis on a stock.
