Worried About the Stock Market? Try Warren Buffett’s Investing Strategy

Investing in the stock market can be daunting, regardless of how it’s performing, but it’s especially unnerving when prices are sinking. The Nasdaq recently entered a bear market after it fell by more than 20%, and the S&P 500 is also creeping closer to bear territory. Nobody knows how long this downturn will last, either, which can make it even more intimidating to invest right now.

If you’re nervous about the future of the market, you’re not alone. But there’s one strategy that can keep your money safer, and it’s also the approach famed investor Warren Buffett takes with his own portfolio: Invest in the right businesses.

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The power of investing in businesses

In Berkshire Hathaway‘s most recent letter to shareholders, Warren Buffett stressed that he and business partner Charlie Munger are not stock pickers. Rather, they focus on choosing the right businesses for their portfolios.

“[W]e own stocks based upon our expectations about their long-term business performance and not because we view them as vehicles for timely market moves,” he writes. “That point is crucial: Charlie and I are not stock-pickers; we are business-pickers.”

Choosing the right investments is key to surviving any degree of market volatility. Even shaky stocks can perform well when the market is thriving, but those stocks may struggle when the market takes a turn for the worse. On the other hand, stocks from healthy organizations are much more likely to pull through after downturns.

When your portfolio is comprised of stocks from the strongest companies, there’s a much better chance your investments will survive even the worst market plunge.

Investing for the long term

Warren Buffett has also stressed the importance of keeping a long-term outlook when investing, and this strategy is crucial during periods of market volatility. Even strong stocks from solid businesses can see their prices plummet when the market is in a slump. But when the market inevitably recovers, these companies should see their stock prices rebound, as well.

Rather than trying to time the market and pull your money out when the market dips, it’s often better to hold your investments and ride out the storm. If you’re investing in high-quality stocks, your portfolio will bounce back eventually and you won’t have lost any money. As Warren Buffett said, “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”

It can be tough to keep a long-term outlook when the market is shaky, but remember that the stock market has existed for many decades. During that time, it’s faced dozens of corrections and crashes, some of them quite severe. Yet it has a 100% success rate when it comes to recovering from downturns.

Nobody can say for certain what will happen with the stock market over the coming weeks and months. But if stock prices continue to fall, it’s extremely likely the market will recover. By investing in strong businesses and holding your investments for the long term, you’ll be in great shape, regardless of what the immediate future has in store.

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Katie Brockman has no position in any of the stocks mentioned. The Motley Fool 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), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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