Warren Buffett’s Bear Market Advice You Can’t Afford to Ignore

Worrying about how to react to the current bear market? The way Warren Buffett handled his investments during an economic downturn can tell us a lot about what moves to make next.

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Updated May 13, 2024
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As of June, the U.S. stock market has been considered a bear market. The lingering effects of the pandemic and COVID-19 variants, high inflation, a slowing housing market, and other factors have caused investors to flee the stock market, causing equity prices to drop.

In times like these, it can be helpful to look at strategies the wealthy use during inflation to see if there’s anything we can profit from. And what better person to turn to than Warren Buffett, one of the greatest investors of all time?

Buffett, now in his 90s, has been investing since he was 11 years old, so he’s managed his investments throughout every kind of market. And he’s been successful, to say the least. In a bear market, what would Warren Buffett do?

What’s a bear market?

A “bear market” describes a general downward trend in the stock market. It’s the opposite of a “bull market.” In a bear market, investors go from enthusiasm for buying, which increases share prices, to fear or pessimism, which causes prices to drop.

Specifically, a bear market is defined as a decline in a market of 20% or more. In June 2022, the S&P 500 Index officially dropped 21% lower than its all-time high made in January.

In 2008, when the entire economy was on shaky ground, the S&P 500 declined nearly 39% for the year. At that time, the whole world was in need of reassurance.

Buffett, nicknamed “the Oracle of Omaha,” wrote in an op-ed in The New York Times: "[B]usinesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records five, 10, and 20 years from now."

So how did his prognostication work out?

It turns out that Buffett wasn’t far off. Following the Great Recession, the American economy went through 91 months straight of economic expansion. Although this growth halted with the onset of the coronavirus pandemic, it’s worth noting that now — 14 years after the recession began — companies are reaching their maximum profits.

Buffett’s bear market advice

Although the economy and the stock market aren’t in as bad shape as in 2008, Buffett’s philosophy of investing is still worth following today. His four pillars of investing are:

  • Invest in yourself
  • Cash is a bad investment
  • Invest in productive assets
  • Evaluate the company before you invest

You might be surprised that he doesn’t say to buy this stock or this sector. Nope. Buffett offers advice that will help investors in their life as well as their portfolio.

By investing in yourself, he means your education, your belief in yourself. Read, play bridge, learn about the world around you. These habits can make you a better investor.

Buffett thinks cash is a bad investment because it doesn’t grow — and in these days of high inflation, cash is losing value.

The productive assets he wants you to invest in are stocks, bonds, things that will gain in value. Buffett is notoriously frugal, and that follows his investment style: Don’t spend money on assets that will depreciate, like cars.

Finally, before you buy stock in a company, look at its value. What do they make? Do they have good management? What are the prospects for growth?

Buffett has given lots of investing advice in his life, but the essential points can help you weather changing economic times.

Does a bear market mean a recession is here?

A bear market doesn’t necessarily mean that a recession is coming. In fact, depending on whom you ask, a bear market might be a sign of good things — i.e., a bull market — to come. For example, in the five years after the 38.49% loss in the S&P 500 in 2008, the index had increased by 79%. If you had sold your stock during the 2008 decline and held the cash, you would have missed out on an enormous gain.

Pro tip: A bear market may be a good time to start considering what moves to make before the next recession.

Bottom line

Warren Buffett has confidently predicted that market dips may be followed by record profits, and history bears that out. Famously, he explained the investing philosophy at Berkshire Hathaway as “to be fearful when others are greedy and to be greedy only when others are fearful.”

Being a long-term investor is key. Even if it hurts to watch investments decline today, it doesn’t mean this will be the case in one year or even six months from now.

There’s never a bad time to learn how to invest money and help to eliminate financial stress for your future self. In fact, an economic downturn may be the time to buy. As Buffett has said, “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”


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Author Details

Rachel Cribby

Rachel Cribby is a personal finance writer from Canada. Once a terrible math student with a fear of numbers, Rachel has embraced the world of personal finance and is passionate about empowering others to do the same. She especially loves taking topics that seem complicated and boring and making them interesting and easy to understand.