3 Ways to Handle a Bear Market Like Warren Buffett

Warren Buffett is considered by many to be the greatest investor ever. And it’s hard to argue against that when you see his continuous success throughout his career.

One of the best things about Buffett’s investment success is that he follows simple principles that even the newest investors can adopt. As the stock market enters into bear market territory, here are three ways to handle it like the Oracle of Omaha.

Image source: Getty Images.

1. Use it as a chance to find value in the chaos

Ironically enough, uncertainty is one of the few certain things in the stock market. There’s daily volatility, bull markets, bear markets, and seemingly everything in between. As stock prices decline during bear markets, it’s easy to find yourself getting anxious watching your portfolio drop, but remember one key thing: Bear markets are all but inevitable. Historically, they have happened every four years or so, and there’s no reason to believe they’ll stop happening in the future.

Buffett is the poster child for value investing; he always aims to buy investments when they’re priced lower than their true value. Instead of fearing bear markets, you can view them as a chance to grab some quality stocks at lower prices. If you liked a stock at $200 per share, you should love it at $150.

As Buffett once said, “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.” In other words, if a bear market happens and your favorite investments become drastically cheaper, use that to your advantage.

2. Don’t follow the masses

Buffett says investors should “be fearful when others are greedy, and greedy when others are fearful.” Generally, a bear market is a sign that investors are fearful because the increased selling of shares is what drives stock prices down. As people panic sell and drive stock prices down either further, you want to avoid a situation where you also panic sell. Not only can it spark a capital gains tax bill, you may also find yourself buying those same shares back later at a higher price.

While bear markets may make others fearful, it can be your chance to get greedy with your favorite investments.

3. Focus on the long term

You should always prioritize your long-term interests when investing. Unfortunately, it’s easy to let your emotions cause you to make short-term decisions that go against that — especially when you see your money seemingly decline right before your eyes. If you truly believe in an investment, you shouldn’t let short-term price declines discourage you, especially if nothing has fundamentally changed with the business.

Buffett’s thoughts on investing for the long term can be summed up with one of his quotes: “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.” That doesn’t mean holding on to failing investments just for the sake of holding them, but it does mean if you’re making an investment, you should be doing so for the long-term potential and outlook.

In the grand scheme of things, bear markets are short-term happenings. Don’t let them throw you off your long-term plan.

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