Warren Buffett recently warned investors that a “hair curler” stock market decline is coming at some point in the next 20 years. He explained that massive sell-offs happen periodically, noting that the S&P 500 index has experienced declines of 20% or more from its previous peak nine times since 1950. Buffett told Berkshire Hathaway shareholders at the annual meeting, “I know people have emotions, but you’ve got to check them at the door when you invest.” He said that the stock market is “a good place to focus your efforts if you’ve got the proper temperament for it.
However, it’s “a terrible place to get involved if you get frightened by markets that decline and get excited when stock markets go up.”
To prepare for a potential market meltdown, investors should adjust their mindset and always have some cash ready to invest when the opportunity arises. Buffett practices this principle by building up Berkshire’s cash stockpile when stock valuations are high and putting the money to work when valuations are attractive.
Buffett’s market warning
While the timing of Buffett’s predicted “hair curler” stock market decline is uncertain, investors can make the right moves to ensure they’ll be able to keep their portfolios straight, even when the market gets frizzy. This includes investing in the S&P 500, focusing on companies with strong economic moats, and investing in dividend-paying stocks. Despite the potential for a significant market downturn, Berkshire Hathaway’s stock looks primed to continue its impressive growth.
From 1965 to 2024, under Buffett’s leadership, Berkshire Hathaway achieved compound annual gains of 19.9%, nearly double the annualized returns of the S&P 500. With Buffett’s plan to retire at the end of the year and hand over the reins to Greg Abel, Berkshire Hathaway appears well-positioned for continued success. Given the company’s strong financial position and promising leadership transition, now may be an excellent time to invest in Berkshire Hathaway stock and hold it for the long run.
