Warren Buffett lived 26 periods S&P 500 was in a bear market. 11-io of them came after the first investment Berkshire Hathaway (BRK.A 0.62%) (BRK.B 0.56%) In 1965.
Legendary investors have led Berkshire to beat the market for the past 57 years. The decisions he made during major downturns made a huge difference in his overall performance. What Buffett does in bear markets — you should too.
1. Don’t be afraid
One of Buffett’s most famous quotes is: “Be fearful when others are greedy and greedy when others are fearful.” Many investors get scared during bear markets. But this is when Buffett has no fear.
In 2008 and 2009, the stock market was rocked as the US economy faced the so-called crisis. The Great Recession. Anyone who has lived through this period knows how scary it can be for most investors.
However, after the dust settled, Buffett wrote in his annual letter to Berkshire Hathaway shareholders: “It’s been an ideal time for investors: Fear is their best friend.” That’s pretty much still his opinion in the current bear market.
2. Put your money to work
In the same shareholder letter, Buffett also writes: “During the chaos of the last two years, we put a lot of money to work.” This was no exaggeration.
At the beginning of 2008, Berkshire’s cash position was $44.3 billion. Over the next two years, the company posted an operating profit of about $17 billion. But Berkshire ended 2009 with $30.6 billion in cash reserves. Buffett greedily practiced what he preached when others feared.
Guess what a multibillionaire is doing in this bear market? Putting Berkshire’s money to work. So far in 2022, Buffett and his investment managers He bought 16 shares. Especially loaded with stocks Western Oil (OXY -1.30%). Currently, Berkshire has a 17.4% stake in the oil and gas company. Oxy has been a big winner, with its stock more than doubling year to date.
The common denominator in all the stocks Buffett buys is that he looks for high-quality businesses at an attractive price. As he wrote in early 2009, “Whether we’re talking about socks or stocks, I like to buy quality stuff when the prices are low.”
This is a smart approach for all investors. Most stocks are currently available at a discount to last year’s prices. However, not all of them have a quality core business.
3. Think long term
Regardless of what the economy or the stock market is doing, Buffett always maintains a long-term perspective. In a dark period in the midst of the Great Recession, Berkshire wrote to shareholders:
But in the midst of this bad news, never forget that our country has suffered far worse in the past… America has had its fair share of challenges.
However, we overcame them. In the face of these obstacles and many others, during the 1900s, the real standard of living of Americans improved nearly 7-fold, while the Dow Jones Industrials rose from 66 to 11,497. Compare the record of this period with the dozens of centuries in which people made only a small profit in how they lived. Although the road has not been smooth, our economic system has worked extraordinarily well over time. It has revealed human potential like no other system and will continue to do so. America’s best days are ahead.
The current situation is not as bad as it was in 2008 and 2009. This bear market presents a great opportunity for long-term investors who are not afraid to put their money to work.
Keith Speights Has positions in Berkshire Hathaway (B shares). The Motley Fool owns and recommends positions in Berkshire Hathaway (B shares). The Motley Fool recommends the following options: $200 Jan 2023 Berkshire Hathaway (B shares), $200 Jan 2023 short Berkshire Hathaway (B shares) and Jan 2023 short Berkshire Hathaway $265 calls for (B shares). The Motley Fool has it disclosure policy.
