Nervous About the Stock Market? 3 Lessons From Warren Buffett

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As stock prices continue to slide, it’s normal to feel concerned about your investments. The S&P 500 officially entered bear market territory recently, and nobody knows for certain how long this downturn might last.

The good news is that the market will recover eventually, and with the right strategy, you can ensure your investments survive, too. Here’s Warren Buffett’s advice on how to make the most of a market slump.

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1. Take advantage of buying opportunities

When stock prices are down, investing more may be the last thing on your mind. But market downturns can actually be one of the best opportunities to invest because you can get much more for your money.

Warren Buffett embraces stock market downturns and crashes as they’re an opportunity to buy quality companies at a discount. In some cases, you could save hundreds or even thousands of dollars by investing when the market is down.

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“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”-Warren Buffett

For example, say you have your eye on a particular stock that normally costs around $200 per share. Currently, though, its price is down 20% at $160 per share. Not only are you getting a $40 discount by investing now, but when the market eventually rebounds and the stock’s price increases again, you could also see substantial returns.

2. Invest in solid businesses

The key to ensuring your investments survive a downturn is to invest in the right stocks. Weaker companies may struggle to rebound from a bear market, while strong businesses are much more likely to recover.

Warren Buffett’s core investing strategy involves buying strong businesses. He says that he and business partner Charlie Munger “own stocks based upon our expectations about their long-term business performance and not because we view them as vehicles for timely market moves. That point is crucial: Charlie and I are not stock pickers; we are business pickers.”

When you have a portfolio filled with stocks from strong companies, it’s extremely likely that your investments will recover from any downturn. Even if stock prices fall further or we face a recession, strong businesses are the most likely to survive.

3. Stay in the market for the long haul

Although it’s not always easy to stomach, stock market volatility is normal. And if history shows us anything, it’s that these downturns are temporary, too.

Warren Buffett frequently encourages investors to keep a long-term mindset, and this strategy can make it easier to tolerate periods of volatility. The market has faced dozens of corrections, crashes, and bear markets throughout history, and it has a 100% success rate when it comes to recovering from them.

^SPX data by YCharts.

While it’s often easier said than done, try to avoid getting caught up in the market’s day-to-day movements. Instead, focus on its long-term performance. Stock prices will recover eventually, and by staying optimistic about the future, you’ll reap the rewards down the road.

“If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”-Warren Buffett

Market downturns can be tough for even the most experienced investors to tolerate, but they won’t last forever. By choosing the right investments and holding them for the long term, you can rest easier knowing you’re doing everything possible to protect your savings.

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