The stock market is a mercurial beast. No matter how smart and prepared you are, you will still, at some point in your investing journey, find yourself totally gobsmacked by the goings-on of the economy. Even Warren Buffett, dubbed the Oracle of Omaha because of his near uncanny ability to foresee the future of the market, doesn’t have a crystal-clear crystal ball.
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The performance of the stock market is key to that of the U.S. economy at large. Market crashes can create recessions that may take years to resolve. Economists have been sounding alarms of a stock market crash that could lead to a recession for a couple years now. What they’ve dreaded could be on the horizon. The Federal Reserve Bank of New York estimated that there’s around a 29% chance of a recession in the next 12 months.
Could the recession we’ve been fearing finally hit — heralded by a stock market crash? It’s quite possible. If it happens, Buffett won’t be caught off guard; he’s been readying for a market dip by selling stocks and building up epic cash reserves. If you want to know what moves to potentially make, here’s what he would likely do in the face of a stock market crash.
Buffett has always preached the importance of staying calm in economic chaos. It makes good sense. You wouldn’t want the captain of a ship going haywire when it gets stormy. And you’re the captain of your ship when it comes to your investments. Buffett didn’t freak out during any previous crashes, and he wouldn’t freak out ahead of or during another.
“If there were to be a market crash, Warren Buffett wouldn’t panic — he would go straight to work,” said Joseph Camberato, CEO at National Business Capital.
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Should the stock market crash, Buffett would see — and seize — an opportunity. He’d scoop up shares in high-value companies that he understands and believes in. These shares would likely be cheaper than they’d be during stronger economic times, so he’d be getting a bargain.
“He would grab his cash reserves and start buying quality companies at a discount,” Camberato said. “The goal wouldn’t be to pick up just anything that’s cheap, but to find businesses that are fundamentally strong, just temporarily pulled down by the market.”
It must be highlighted that Buffett’s strategy would be value-focused.
“He looks for companies that are solid and aren’t going anywhere, but are caught in the wave of a market downturn,” Camberato said.
