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Warren Buffett’s 2-Step Plan for Surviving a Bear Market

Warren Buffett is arguably the greatest investor in history. So, when the markets fall hard — as they have this week — it’s worth listening to what the CEO and chairman of the holding company Berkshire Hathaway has to say.

Today, the S&P 500 index briefly dropped to 20% below its all-time high reached in January — momentarily putting stocks into bear-market territory — before ending the trading day down by more than 18% from the recent high.

Whether stocks will fall back into and remain in a bear market soon is anyone’s guess. But one thing’s for sure: It’s only a matter of time.

If that freaks you out, it shouldn’t.

In one of his annual letters to shareholders of Berkshire Hathaway five years ago, Buffett reminded us that major market declines are inevitable. As he wrote:

“… the years ahead will occasionally deliver major market declines — even panics — that will affect virtually all stocks.”

He went on to say that no one can predict when these downturns will occur. However, he reassured investors that they need not worry about bear markets — or even vicious stock market crashes — as long as they remember two things:

“First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be unwarranted. Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well.”

Buffett’s reflection amplified one of his most famous bits of investing advice: “Be fearful when others are greedy, and be greedy when others are fearful.”

So, hold on through thick and thin — and possibly even buy more stock at times when things look especially thin — and you’ll do just fine.

That’s something to remember as markets tumble — a trend that very well might continue throughout 2022.

As Buffett wrote in 2017, it’s always been a mistake to bet against America, and the future is likely to be brighter than the past:

“You need not be an economist to understand how well our system has worked. Just look around you. See the 75 million owner-occupied homes, the bountiful farmland, the 260 million vehicles, the hyper-productive factories, the great medical centers, the talent-filled universities, you name it — they all represent a net gain for Americans from the barren lands, primitive structures and meager output of 1776.”

For more guidance from the Oracle of Omaha, check out:

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