Why I think Warren Buffett is right to always think a market crash is coming

Warren Buffett – broadly heralded as the world’s greatest investor – often admits he doesn’t watch the market closely. However, it’s safe to say he takes advantage of market crashes.

Major downturns are an inevitable part of investing in the stock market. They can be disappointing, if not devastating, for the unprepared, and their timing is nearly impossible to predict.

But they don’t concern Buffett. As the ‘Oracle of Omaha’ oh so confidently told investors in 1994:

Stock prices will continue to fluctuate – sometimes sharply ­– and the economy will have its ups and downs. 

Over time, however, we believe it highly probable that the sort of businesses we own will continue to increase in value at a satisfactory rate.

Indeed, the billionaire’s company, Berkshire Hathaway Inc (NYSE: BRK), has consistently delivered major returns. Its stock has gained more than 2,000% since 1994.

So, how does Buffett thrive through market crashes? Keep reading to find out.

Buffett wisdom on market crashes

Buffett not only believes a market crash is always coming, but he is also generally ready at the wheel to take advantage.

The investing great’s strategy of buying shares in quality companies for cheap prices and holding them over the long term is arguably best executed during a market crash.

Competitive, well-managed businesses often trade at prices well below their worth during downturns.

Berkshire Hathaway snapped up around US$9 billion of shares over the September quarter, selling just US$5 billion worth, The Motley Fool reports.

That’s despite the S&P 500 Index (SP: .INX) slumping another 5% over the period, leaving it down 25% year to date at the end of September – firmly in bear market territory.

Thus, I encourage investors to think of a market crash as a sale on quality shares.

Need an example? Just look at the 2020 COVID-19 crash, wherein the S&P/ASX 200 Index (ASX: XJO) tumbled 32% in a matter of weeks before reaching a new record high just months later.

Of course, that was a notably quick crash and an extremely fast recovery, but the point stands. Many of the market’s highest-quality businesses likely took a brief tumble over those months, leaving them ripe for the picking.

Thus, long-term investors will be hard-pressed not to experience a market crash, but I wouldn’t let the next one bother me.

The market has historically always returned to, and surpassed, its previous highs. Perhaps no one knows this better than Buffett.

The post Why I think Warren Buffett is right to always think a market crash is coming appeared first on The Motley Fool Australia.

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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and recommends Berkshire Hathaway (B shares). The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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