"Warren Buffett's Take on Recession: Bad News is an Investor's Best Friend - Five Key Insights on Weathering Economic Downturns" (2024)

Launching into this edition of The Blind Economist, we delve into five key insights offered by Warren Buffett to prepare before a recession knocks on our doors. Buffett strongly advocates for the premise, "An investor's greatest ally is bad news."

Murmurs about an imminent recession have been circulating with increasing frequency for over a year now, yet show no signs of subsiding. Despite our solid economy and low joblessness, a recent Forbes article foresees a "mild recession" possibly encroaching by late 2023 or 2024.

If such predictions hold, it's time to gear up for stock market investments – providing you wish to follow in the footsteps of Warren Buffett, the multi-billionaire dynamo heading Berkshire Hathaway. As stated by Buffett in his 2008 New York Times op-ed: "When others demonstrate greed, manifest fear, and when others display fear, display greed." Simply put, when investment apprehension peaks – often preceding or during a recession – it's your cue to seize the opportunity by snapping up shares and other assets at reduced rates.

As succinctly expressed by Buffett in the same piecd: “In essence, bad news stands as an investor’s strongest ally, providing opportunities to purchase a piece of America's future at a notably reduced price."

Drawing from Buffett's advisem*nt, The Blind Economist presents these five concrete steps. Reflective not only of his historical strategies, but also resonating with his present maneuvers, these steps offer meaningful revelations for any investment strategy, regardless of the stake's size.

This principle remains as pertinent today as it ever did, even going back 15 years to the pinnacle of the Great Recession. It is counterproductive to remain inert and invest considerable time in attempting to foresee when the economy or the stock market will rebound - an undertaking so intricate and unpredictable that even luminaries like Buffett falter.

In his own words, Buffett confessed, "I'm completely at a loss as to whether stocks will ascend or descend a month or a year from now." He did express optimism about one certainty, though: "The market trend is likely to swing upwards, possibly a commanding surge, occurring well before any upturn is reflected in either public sentiment or the economy. Thus, if you procrastinate until the arrival of the robins, you'll miss out on the spring."

As one who has carved out a path to self-built wealth, let me share with you five stocks I deem indispensable to my investment portfolio.

Before we find ourselves in the throes of a recession, there are five preemptive strategies that Buffett strongly advocates for.

Commence with Acquiring Liquidity

As shared by Motley Fool, Buffett disclosed his pre-recession strategy to CNBC's Becky Quick earlier in 2023, emphasizing the importance of maintaining a substantial liquid reserve. This cash buffer allows for more astute decision-making, curtailing the need for forcefully imposed choices. While an accumulation of billions in cash à la Berkshire Hathaway may not be feasible, one can enact similar preparations by shunning assets that could potentially lock up your liquidity.

In fact, this principle is clearly embodied in Buffett's business maneuvers. His firm has successfully piled up a staggering $147 billion - all geared up and ready for the right investment opportunity.

Eschew Parking All Your Capital in Zero-Growth Assets

There can be a quite strong allure to opt for a financial safe haven during recessionary times by securing most, if not all, of your wealth in risk-free checking and savings accounts. However, these typically lack any significant growth potential. As Buffett pointed out in the New York Times, it's highly probable that equities will considerably outdo cash positions in the next decade.

Adopt a Far-Sighted Attitude

Every recession has a lifespan, some lasting longer than others, but none are eternal. On the other hand, the stock market enjoys a multiple-decade trend of upward trajectory. Evidence of this can be traced back to the aftermath of the Great Depression in the 1930s, the economic stagnation coupled with skyrocketing inflation of the 1970s and early 1980s, the catastrophic recession of 2007-2009, and most recently, the financial turbulence induced by the COVID-19 pandemic.

Falling investment values during or pre-recession should not induce panic. Instead, remember that, as Buffett suggests, patience is key in the belief that the stock market will eventually recover — historical patterns demonstrate this to be an eventuality.

Establish Trust in Renowned Organizations

During phases of economic decline and consequent stock market dips, renowned blue-chip stocks also bear witness to their fair share of variations. This often leads to hesitation in investors contemplating the prospects of these businesses amidst a decline. But as Buffett asserts, such phases are usually temporary blips on the radar.

Buffett anticipates, "A multitude of leading businesses are likely to hit unprecedented levels of profitability in the forthcoming 5, 10, and 20 years."

Preserve Your Standard Investment Techniques

Buffett underscores the requirement to maintain a "business-as-usual" outlook, even as we head into a period of recession. It's not wise to seize your investing activities abruptly or make hasty decisions to invest in an array of stocks which wouldn't ordinarily be in your purview.

Reiterating Buffett's words from his CNBC discussion, "Our objective continues to be the acquisition of well-run businesses with stable leadership, at reasonable prices, and we are committed to this guideline."

As stated by The Blind Economist, five blue-chip companies warranting your diligent overview are Apple, Boeing, Caterpillar, Google, and Microsoft.

Avoid the pitfall of market timing; instead, contemplate augmenting your blue-chip stock portfolio as markets veer towards recession. Our attention isn't transfixed on day trading, but on steadfastly staying on course over an extended period.

Keep yourself updated so you, and your business or family, can make informed decisions based on your unique personal circ*mstances. Our goal is to assist you in proficiently navigating the potentially turbulent waters of tomorrow's economy today.

With Regards,

Michael Anthony Francis,

The Blind Economist,

CEO, Macroeconomic Solutions