Warren Buffett's top 5 tips for surviving a bear market

Warren Buffett is among the greatest investors of all time. His company, Berkshire Hathaway, has returned around 20% annually since Buffett took over in the 1960s, trouncing the S&P 500’s annual return over that time period.

In 2024, Buffett has sold shares in some longtime holdings, such as Apple and Bank of America. The sales helped push Berkshire’s cash pile to more than $300 billion at the end of September. The large cash holdings have caused some market watchers to wonder if Buffett is preparing for a bear market, or at least a downturn of some kind.

(If you’re worried about a potential market downturn, it may be worthwhile to speak with a financial adviser, who can help you make a plan.)

To be sure, Apple and Bank of America are still two of Berkshire’s largest holdings. But the massive cash position could come in handy if stocks get cheaper in 2025 or beyond.

Here are Buffett’s top tips for navigating a bear market.

1. Be fearful when others are greedy, and be greedy when others are fearful.

This is perhaps Buffett’s most famous quote. The advice is based on when prices are most likely to be attractive or unattractive. When people are fearful, as often happens during bear markets, stock prices become more attractive and those with available cash can step in to take advantage of investment bargains.

Conversely, the time to be fearful is when others are greedy and prices are high. No investment is so good that it can’t be ruined by paying too high of a price relative to its intrinsic value.

2. Cash is to a business as oxygen is to an individual: never thought about when it is present, the only thing in mind when it is absent.

Bear markets often coincide with economic downturns, which can lead to job losses or other unexpected financial difficulties. This is why it’s so important to have an emergency fund built up with about three to six months of expenses. You never want to be in a position where you can’t pay your bills or risk losing your home because you were unprepared for a downturn. Recessions and bear markets can pop up when you’re least expecting it. It’s critical to have an emergency fund so that you’re ready for anything.

3. Big opportunities come infrequently. When it’s raining gold, reach for a bucket, not a thimble.

Here, Buffett’s advice focuses on seizing good investment opportunities when they come along. The opportunity may not last long, and it may not occur again for several years.

There are two major mistakes people make when a good investment opportunity arises. The first is that they think an even better opportunity may be coming in the near future. Perhaps stocks are down 20% from their highs and represent good value, but you think prices could tumble another 10%. This is an example of trying to time the market, a practice that investors should avoid.

The second mistake people make is only buying a little bit of a good investment opportunity, so that it has very little impact on your overall financial position. There’s nothing quite as annoying as being correct in your investment analysis and not seeing a change in your net worth as a result.

4. You should always adapt your consumption to your income. You shouldn’t try and adjust your income to your consumption.

Buffett made this comment as a warning about the dangers of reaching for yield. During a bear market, you may find that your income has dropped due to a job loss or other factors. It can be tempting to try to boost that income by venturing into riskier investments, but Buffett cautions against that.

It’s better to adapt to the new circumstances, even if it means reducing your level of consumption. You don’t want to compound your problems by entering into investments that are too risky.

5. If an ark may be essential for survival, begin building it today, no matter how cloudless the skies appear.

The best way to survive a bear market is to prepare for one before it happens. Market downturns can come when you’re least expecting them, so if you wait to start preparing until one occurs, it could make getting through it more difficult.

You’ll definitely want to have an emergency fund to rely on if you lose your job, but you’ll also want to evaluate your investment portfolio to make sure your asset allocation is aligned with your investment goals. Do you have money you’ll need in the next couple of years invested in stocks? If so, you’ll want to reposition your portfolio so that money you’ll need in the short term is invested in short-term investments.

It may also benefit you to prepare yourself emotionally for the impact of a bear market on your investments. It can be jarring to see your portfolio’s value fall by 20% or more, but this is actually a normal part of any long-term investing journey. Reminding yourself of that before it happens may help you navigate bear markets more easily when they occur.

Bottom line

Warren Buffett’s advice for surviving bear markets comes down to two major points. First, you want to make sure you have enough cash to get through any financial difficulties that may come up. Second, be prepared to take advantage of investment opportunities that arise during bear markets. Preparing now can help ensure that you don’t just survive the next bear market but use it to position yourself for long-term success.

If you have questions about your financial situation, it may make sense to speak with a financial adviser. Bankrate’s financial adviser matching tool can help you find an adviser in your area.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.