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Whispers of an impending recession have been making the rounds for more than a year, and they don’t seem to be going away anytime soon. If so, get ready to invest in the stock market. But that’s only if you want to follow in the footsteps of Berkshire Hathaway billionaire Warren Buffett.
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As Buffett famously wrote in a 2008 New York Times op-ed, “Be fearful when others are greedy, and be greedy when others are fearful.” This essentially means that when others are afraid to invest their money, such as before or during a recession, you should take advantage of stocks and other assets at a discount.
“Bad news is, in short, an investor’s best friend,” Buffett wrote in an op-ed. “You can buy a piece of America’s future at a reduced price.”
This rule is as valid today as it was 15 years ago, at the height of the Great Recession. What you don’t want to do is sit around and try to predict when the economy or stock market will recover. That’s impossible even for an expert like Buffett.
“I have no idea whether stock prices will go up or down a month or a year from now,” Buffett wrote. “But what’s more likely is that the market could move up, perhaps significantly, long before conditions and the economy turn around. So if you wait for robins, the spring is over.”
Here are five things Buffett recommends doing before a recession hits.
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Building liquidity
As The Motley Fool reported, Buffett told CNBC’s Becky Quick in early 2023 that his strategy for preparing for a recession was to “help people make smart decisions rather than forced decisions.” “It’s about having enough cash on hand,” he said.
You can’t hoard billions in cash like Berkshire Hathaway, but you can take steps such as avoiding assets that could tie up your cash.
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Invest your money in companies with a proven track record
During economic downturns and stock market downturns, blue chip stocks are affected just like any other stock, so you may be wary of investing in companies that are underperforming and have depressed stock prices.
But as Buffett pointed out, that’s usually only a temporary problem.
“Most major companies will set new profit records five, 10, or 20 years from now,” he wrote.
Stick to your regular game plan
Buffett told CNBC that he believes in a “business as usual” approach before a recession. You don’t want to suddenly stop investing, but you also don’t want to go so far as to buy up a bunch of stocks that you wouldn’t otherwise be able to quit.
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“We just want to buy good companies at fair prices that are run by people we like and trust,” Buffett told CNBC. “And we will continue to do that.”
Avoid putting all your money into non-growth assets
It’s tempting to keep all or most of your money in risk-free checking or savings accounts that likely have little potential for growth and seek safe financial harbor before a recession. .
But, as Buffett wrote in the NYT, stocks will “almost certainly outperform cash over the next decade, perhaps by a significant amount.”
take a long-term view
Some recessions last longer than others, but all are temporary. In contrast, the stock market has a pattern of rising over time that spans decades.
This was the case following the Great Depression of the 1930s, the economic downturn and high inflation of the 1970s and early 1980s, the Great Recession of 2007-2009, and the COVID-19 pandemic earlier this decade. .
Don’t panic if your investments go down before or during a recession. Instead, maintain Buffett’s belief that the stock market will rise again. Because history shows it happens all the time.
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This article originally appeared on GOBankingRates.com: 5 things Warren Buffett should do before a recession hits
