3 Tips for Investing During a Recession, According to Warren Buffett

After a long and tumultuous year, many investors feel exhausted by the ups and downs of the stock market. Unfortunately, if the economy is headed for recession, volatility is likely to increase further.

To put it bluntly, no one knows when a recession is coming. But if a recession is imminent, it’s wise to start preparing now.

There is no one right way to invest, but there are some proven tips that can help protect your money during a downturn. Advice from legendary investor Warren Buffett.

1. Keep a long-term outlook

When you’re in the middle of a recession, it can sometimes seem endless. But even the worst recessions are temporary.

The bursting of the dotcom bubble holds the record for the longest bear market at almost 2.5 years. During the Great Recession, the bear market lasted him just under 1.5 years. Those years were undoubtedly difficult for investors, but those who weathered the storm were later rewarded with a record bull market.

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In a 2008 Opinion new york timesWarren Buffett stressed the importance of maintaining a long-term outlook.

My rules for shopping are simple. And most certainly, fear is now prevalent and gripping even seasoned investors. But concerns about the long-term prosperity of many healthy companies in the country are not justified. These companies will certainly take a hit on the bottom line, as they have in the past. But most of the big companies will set new profit records in 5, 10, 20 years from now.

2. Don’t wait to invest

It may not seem like it, but this is one of the best investment opportunities of the year. Stocks across the board have plummeted, making it a great time to load up on quality investments at deep discounts.

You may be tempted to wait until the market shows signs of recovery before buying. But you could miss out on real revenue if you go that route.As Buffet wrote Times article:

I have no idea if stocks will go up or down a month or a year from now. However, the market could probably rise significantly well before sentiment or the economy turn around. So if you wait for the robin, spring will be over.

Stock markets can be unpredictable, and no one knows when a bear market will bottom out. Therefore, the best thing you can do is invest consistently during recessions and take advantage of each boom.

3. Focus on quality business

The key to investing in weathering a recession is buying strong stocks. The strongest stocks come from the healthiest companies.

During recessions, the prices of many stocks fall. However, if a company has solid business fundamentals under its foundation, such as a capable leadership team and solid financials, it is much more likely to recover when the market recovers.

of Berkshire HathawayIn a 2021 letter to shareholders of Buffett, Buffett said he and business partner Charlie Munger “hold our shares based on long-term expectations. work performance and No Because we see them as instruments of timely market movements. ”

“That point is very important,” he continued. “Charlie and I No Stock Pickers; We are Business Pickers. ”

The more of these businesses you have in your portfolio, the more likely they are to thrive after a recession. Investing in these types of stocks now and holding them for the long term prepares you for what the future holds. can do.

Katie Brockman has no positions in any of the stocks mentioned.The Motley Fool invests in and recommends Berkshire Hathaway. The Motley Fool’s U.S. Headquarters placed Berkshire Hathaway’s January 2023 $200 long call, Berkshire Hathaway’s January 2023 $200 short put, and Berkshire Hathaway’s January 2023 $265 short put. We recommend short calls. The Motley Fool’s U.S. headquarters has a disclosure policy.

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