Here’s What Warren Buffett Is Doing In Bear Markets — And You Should Too
Warren Buffett lived through 26 periods when the S&P500 was in a bear market. Eleven of them came after he first invested in Berkshire Hathaway (BRK.A 0.62%) (BRK.B 0.56%) in 1965.
The legendary investor has led Berkshire to beat the market for the past 57 years. His decisions made during major downturns made a big difference in his overall performance. Here’s what Buffett does in bear markets — and you should too.
1. Don’t be afraid
One of Buffett’s most famous quotes is: “Be afraid when others are greedy and be greedy when others are afraid.” During bear markets, many investors are scared. But that’s exactly when Buffett isn’t scared at all.
In 2008 and 2009, the stock market faltered when the US economy went through what would be called the Great Recession. Anyone who lived through this period knows how frightening it was for most investors.
However, Buffett wrote in his annual letter to Berkshire Hathaway shareholders after the dust settled: “It has been an ideal time for investors: a climate of fear is their best friend. This is almost certainly still his view during the current bear market.
2. Make your money work
In that letter to shareholders, Buffett also wrote, “We’ve put a lot of money to work during the chaos of the past two years.” He wasn’t exaggerating.
At the start of 2008, Berkshire’s cash position was $44.3 billion. Over the next two years, the company retained operating profits of approximately $17 billion. But Berkshire ended 2009 with a stockpile of cash of $30.6 billion. Buffett practiced what he preached by being greedy when others were afraid.
Guess what the multi-billionaire is doing in this bear market? Making Berkshire Money Work. So far in 2022, Buffett and his investment managers have bought 16 stocks. It is particularly full of actions of western oil (OXY -1.30%). Berkshire now owns a 17.4% stake in the oil and gas company. Oxy has been a big winner, its shares having more than doubled since the start of the year.
A common denominator in all stocks Buffett buys is that he seeks high-quality companies at an attractive price. As he wrote in early 2009, “Whether it’s socks or inventory, I like to buy quality merchandise when it’s marked down.”
It’s a smart approach for all investors. Most stocks are available now at a price lower than their prices last year. However, not all have quality underlying businesses.
3. Think long term
Regardless of what the economy or the stock market does, Buffett always maintains a long-term perspective. During the dark times amid the Great Recession, he wrote to Berkshire shareholders:
Amidst this bad news, however, never forget that our country has faced much worse hardships in the past…America has not been short of challenges.
Without fail, however, we overcame them. In the face of these obstacles – and many others – the real standard of living of Americans increased almost sevenfold during the 1900s, while the Dow Jones Industrials rose from 66 to 11,497. Compare the record of this period with the tens of centuries in which humans achieved only tiny gains, if any, in their way of life. Although the path has not been easy, our economic system has worked extraordinarily well over time. It has unleashed human potential like no other system has, and it will continue to do so. America’s best days are ahead of us.
The current situation is not as bad as it was in 2008 and 2009. This bear market presents a huge opportunity for long-term investors who are not afraid to put their money to work.
Keith Speights holds positions in Berkshire Hathaway (B shares). The Motley Fool holds positions and recommends Berkshire Hathaway (B shares). The Motley Fool recommends the following options: $200 long calls in January 2023 on Berkshire Hathaway (B shares), $200 short puts in January 2023 on Berkshire Hathaway (B shares) and short calls of $265 in January 2023 on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.