A bull market is coming – 3 ways Warren Buffett is preparing

It’s been a tough year for the stock market, and if you’re feeling discouraged about investing, you’re not alone.

The good news, however, is that a bull market is on the way. While no one knows exactly when stocks will rebound, every bear market has eventually given way to a bull market.

Now is the time to start preparing for the inevitable recovery, and there are a few Warren Buffett-approved strategies to make the most of it.

Close-up of Warren Buffett looking at the camera.

Image source: The Motley Fool.

1. Maintain a long-term vision

When we’re in the middle of a recession, it can be hard to stay optimistic. But one of the best ways to build wealth in the stock market is to invest during low times and simply wait for the market to recover.

In 2008, at the height of the Great RecessionWarren Buffett wrote an opinion piece for The New York Times.

“[F]The ear is now widespread, grabbing even seasoned investors,” he writes. “But fears about the long-term prosperity of the country’s many strong companies are meaningless. These companies will indeed suffer lower profits, as they always have. But most big companies will set new earnings records in five, 10 and 20 years.”

As you prepare for a bull market, a long-term perspective is essential. Try to avoid getting caught up in short-term market movements and instead focus on the long-term potential of your investments.

2. Focus on companies instead of stocks

The stocks you choose can make or break your portfolio, especially during times of volatility. If you choose the right investments, you could see substantial gains when the market starts to rebound.

Picking out high quality stocks comes down to choosing the right companies. Companies with strong fundamentals are more likely to survive a market downturn or recession. Even if they take a hit in the short term, they have a much better chance of thriving in the long term.

Buffett is keen to invest only in the strongest companies. In Berkshire HathawayIn his 2021 letter to shareholders, he explains that he and his business partner Charlie Munger “own stocks based on our expectations of their long-term value.” Company performance and not because we view them as vehicles for timely market movements. »

“This point is crucial,” he continues. “Charlie and I are not order pickers; we are business selectors.”

3. Invest now before prices rebound

When stock prices are down across the board, it may not seem like the best time to buy. However, it is currently one of the best investment opportunities of the year.

Not only can you pick up quality stocks at a discount, but by investing during market declines, you could see significant returns when the market eventually rebounds.

For example, between 1999 and 2001, Amazon lost nearly 95% of its value amid the bursting of the dot-com bubble. But if you had invested at its lowest point and just waited it out, you would have seen returns of over 700% in the next two years alone.

AMZN chart.

AMZN given by Y-Charts.

Market downturns can be amazing buying opportunities, but if you wait too long to invest, you could miss out on some of that revenue.

“Let me be clear on one point: I cannot predict short-term movements in the stock market,” Buffett explains in the Time article. “What is likely, however, is that the market will rise, perhaps substantially, long before sentiment or the economy recovers. So if you wait for the robins, spring will be over.”

We may not know exactly when the next bull market will begin. But by investing now when prices are lower, and then holding onto those investments for the long term, you can take full advantage of the inevitable rally.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Kate Brockman has no position in the stocks mentioned. The Motley Fool holds positions and recommends Amazon.com and Berkshire Hathaway. The Motley Fool recommends the following options: January 2023 long calls on Berkshire Hathaway $200, January 2023 short calls on Berkshire Hathaway $200 and January 2023 short calls on Berkshire Hathaway $265. The Motley Fool has a disclosure policy.

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