Warren Buffett Bear Market Quotes: The 2022 bear market erased billions in stock value, and a lot of investors are still running scared – even after a bounce north of 20% that technically was defined as a new bull market.
In Q1 and Q2 2022, panicked investors sold off growth stocks in favor of safer, more reliable assets, realizing substantial losses along the way.
However, there are investors who don’t see cause for alarm in a declining market. In fact, they consider it a golden opportunity to boost long-term returns. Warren Buffett falls into the latter category. When the market goes down, he believes it is time to buy.
What Is Warren Buffett’s Strategy?
Warren Buffett has been studying the stock market for more than 80 years. Over the course of his long career, he developed a simple strategy that has proven to be highly effective: buy quality companies when they are undervalued, then hold on to them forever.
Buffett built a multi-billion dollar fortune by patiently adhering to this strategy, and he created tremendous value for the shareholders who put their money into his holding company, Berkshire Hathaway.
Berkshire Hathaway stock’s average annual returns are almost twice the S&P 500’s returns from 1965 to present, and the stock has grown more than 100,000 percent during that period.
Warren Buffett’s strategy doesn’t depend on an expanding market, and some of his most profitable moves were made possible by bear market conditions. One Warren Buffett quote sums up his position succinctly:
Be fearful when others are greedy, and be greedy only when others are fearful.
In other words, bear markets are often the best time to buy.
How Does Warren Buffett Invest During A Bear Market?
A market is officially in bear territory when it has dropped 20 percent or more from its most recent high. In 2022, there were large declines across the board. The Nasdaq was declared a bear market on March 7th, and the S&P 500 hit the threshold for a bear market on June 13th.
Some of the companies that make up those indexes lost 75 percent or more of their value. High-growth tech stocks were among the hardest hit. When interest rates and inflation went up, investors abandoned unprofitable startups. They also sold stock in companies that were popular during the pandemic because 2022 growth fell short of their previous year’s returns.
The trouble is that most investors made their trades out of fear – they worried that their portfolios wouldn’t recover after the dramatic declines. They didn’t just sell stocks in struggling companies. They sold off shares of companies with wide moats and promising long-term prospects.
That behavior has made for discouraging news reports that imply everyone is losing money. According to Warren Buffett, that gloomy outlook doesn’t apply to those who take bold action during bear markets. He made that point clearly in his 1997 letter to shareholders when he said:
So smile when you read a headline that says, “Investors lose as the market falls.” Edit it in your mind to “Disinvestors lose as market falls—but investors gain.”
Warren Buffett doesn’t sell off his stock in a bear market – he does just the opposite. Buffett takes advantage of price drops to buy stock at a discount. In 2008, Buffett wrote:
Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.
He was even more direct in 2016 when he said:
Widespread fear is your friend as an investor because it serves up bargain purchases.
What Stocks Is Warren Buffett Buying?
While no one can be sure what Warren Buffett is buying right now, a quick look at Berkshire Hathaway’s portfolio offers clues.
If he is expanding Berkshire Hathaway’s position in companies that have already earned his approval, these are some he may be buying based on their drop in price since the start of the year:
Amazon – down approximately 17 percent year-to-date
Charter Communications – down approximately 28 percent year-to-date
Nu Holdings – down approximately 59 percent year-to-date
Snowflake – down approximately 49 percent year-to-date
Verisign – down approximately 22 percent year-to-date
Each of these companies has a clear competitive edge and impressive growth prospects, suggesting they are sure to recover if investors are patient.
How To Invest In A Bear Market
It’s unsettling to watch portfolio values decline, but the best way to invest in a bear market is to ignore those numbers. Though some bear markets last longer than others, the market has always recovered and gone on to reach new heights.
Warren Buffett warned Berkshire Hathaway shareholders that market downturns are part of the process back in 2016 when the economy was growing steadily. He said:
The years ahead will occasionally deliver major market declines — even panics — that will affect virtually all stocks. No one can tell you when these traumas will occur.
In other words, though the timing of bear markets can’t necessarily be predicted, avoiding them altogether is not realistic.
Instead of panicking when there is a market downturn, Buffett recommends patience. There is no need to deviate from the basic strategy of buying and holding quality stocks.
Losses aren’t realized until shares are sold, so it is best to ignore volatile prices and stick to the long-term plan. As Buffett put it, “Remember that the stock market is manic depressive.”
The bottom line? If the underlying companies have solid foundations, wide moats, and effective management teams, stocks will recover regardless of how much they lose during a temporary setback.
Here are fourteen other famous Warren Buffett Quotes:
14 Warren Buffett Quotes for Success
1. “Price is what you pay. Value is what you get.”
This is essential to Buffett’s success. He and his team at Berkshire-Hathaway focus on long-term value instead of short-term price fluctuations. When evaluating a company, place its value above everything else.
2. “We simply attempt to be fearful when others are greedy and to be greedy when others are fearful.”
A lot of investors follow market trends and get caught up in what other people say they should do. That approach can create a damaging cycle for the individual investor and the market. For example, they might start to sell shares in a company with a tumbling stock price. That forces the price even lower.
Buffett knows better, so he tends to go against the trends. When other people get scared and start dumping shares of undervalued companies, he buys them at discounted prices. When other investors try to ride a rally to extremes, Berkshire-Hathaway steps back to the high prices and potential bubble.
3. “Look at market fluctuations as your friend rather than your enemy; profit from following rather than participating in it.”
The market is a fickle beast that will fluctuate. When you make peace with its ups and downs, you can find ways to profit from them.
4. You know, people talk about this being an uncertain time. You know, all time is uncertain. I mean, it was uncertain back in – in 2007, we just didn’t know it was uncertain. It was – uncertain on September 10th, 2001. It was uncertain on October 18th, 1987. You just didn’t know it.”
You don’t know something will happen until it happens. A shock could come at any moment.
5. “You’ve got to understand accounting. You’ve got to. That’s got to be like a language to you.”
Don’t skimp on critical basics.
6. “[Our] favorite holding period is forever. We are just the opposite of those who hurry to sell and book profits when companies perform well but who tenaciously hang on to businesses that disappoint. Peter Lynch aptly likens such behavior to cutting the flowers and watering the weeds.”
Short-term investments might earn you some quick returns, but they take a lot of time and energy. They’re also risky, which could end up costing you a lot of money in transaction costs. It’s better to find a reliable company you believe in, buy shares, and hold your investment for as long as possible to watch the company thrive.
7. “The important thing is to know what you know and know what you don’t know.”
Buffett talks often about the dangers of investing in things you don’t understand. You can’t make an informed judgment when you don’t fully understand how a company generates revenues or plans to grow. Push that concept a bit further by recognizing what you know and what you don’t know. Otherwise, you’ll struggle to decide whether you should invest in an opportunity.
8. “In my view, for most people, the best thing is to do is owning the S&P 500 index fund. There are huge amounts of money people pay for advice they really don’t need.”
Everyone wants advice that will lead to greater wealth. Unfortunately, a lot of investors pay high prices to access investment “gurus” with portfolios that rarely perform better than the S&P 500. Unless you have a massive fortune to manage, save your money and invest in a fund with a history of strong returns.
9. “Don’t pass up something that’s attractive today because you think you will find something better tomorrow.”
You can only assess the things in front of you now. Pay attention to those things. Otherwise, you could miss great opportunities because you wanted something better to come along. That better thing might never come.
10. “I have every possession I want. I have a lot of friends who have a lot more possessions. But in some cases, I feel the possession possesses them, rather than the other way around.”
Buffett is famously frugal. He doesn’t own a fancy car or have a large closet full of expensive suits. He’s lived in the same house he purchased in 1958. This minimalist approach to life seems to work very well for him.
11. “Rule No. 1 is never lose money. Rule No. 2 is never forget Rule No. 1.”
Maybe this sounds obvious, but it’s still important advice. Critically, though, you can’t invest without exposing yourself to risk. At times, you will almost certainly lose money. Even Buffett has lost money on deals that didn’t play out as he expected.
12. “What we do is not beyond anyone else’s competence. I feel the same way about managing that I do about investing: It’s just not necessary to do extraordinary things to get extraordinary results.”
Is Buffett a genius, or does he simply follow a reliable plan for success? He doesn’t think he and his team do something beyond the abilities of other investors.
13. “The best way to think about investments is to be in a room with no one else and to just think. If that doesn’t work, nothing else is going to work.”
How much of your day do you spend in contemplation? Buffett estimates that he spends 80% of his day reading and thinking.
14. “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
Hey, who doesn’t like great pair of socks (or some stocks!) at a discount? Buffett knows that buying during a dip can lead to stellar returns as long as you choose healthy companies that can survive challenges.
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