This month, Warren Buffett announced that he would resign from his position. Berkshire Hathaway president, ending his more than 60-year tenure at the company he helped turn into a trillion-dollar juggernaut. With Buffett officially gone, it’s a good time to reflect on some of the gems he’s let go over the years.
One piece of advice from Buffett that I always keep in mind is how to prepare for a stock market crash. And while there are no immediate signs of an imminent crash, that’s exactly what Buffett means. Buffett said: “Predicting rain doesn’t count. Build arches yes. »
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What Buffett meant by his statement
The stock market has always been irrational, so you can’t predict its short-term performance. Trying to time the market and predict a crash (rain) is more gambling than investing. Instead, investors should strive to be as prepared as possible (build an ark).
A big part of being prepared is having an emergency fund. Young adults should aim to save at least three months of expenses, while families may want to aim for at least six months. Everyone’s situation is different, so there is no fixed number; just make sure you have enough to weather unforeseen storms.
An emergency fund helps avoid situations where you might have to sell stocks to cover expenses, which could result in selling at a loss (especially during a crash) or triggering capital gains taxes. Ideally, your investments can remain uninterrupted.
The market has rebounded after every crash it has experienced. Investors who held on to their stocks and stayed the course reaped the rewards of the rebound. Since 1980, the S&P 500 has experienced seven real crashes, yet it has risen more than 7,000% since then.
^SPX data by YCharts. The vertical gray bars represent official recessions in the United States.
Stock market crashes can present buying opportunities
Buffett is arguably the most profitable investor of all time, with many of his historic trades occurring when the market was down. He once said, “Be fearful when others are greedy, and greedy when others are afraid.” »
Stock market crashes occur when many investors start dumping their stocks at the same time. In other words, the market is panicking. Instead of viewing the crash as a reason to jump ship (much easier said than done, I know), view it as a time to do some discount shopping and pick up quality stocks at much lower prices. If you liked a $150 pair of shoes, you probably would Really like them at $100.
Gn bussni
