Warren Buffett’s Take On Recession Investing

Key takeaways

• Warren Buffett is one of the world’s most successful investors.
• Buffett sees recessions as an opportunity to buy shares at a discount.
• For most people, he recommends a simple, diversified portfolio with a hands-off strategy.

Warren Buffett is one of the best-known and most successful investors of all time. He’s known for his value investing strategy, looking to purchase strong companies at reasonable prices and to hold them for the long term.

With fears of a recession on the horizon, many people are turning to Buffett’s advice on how to best invest for the future.

Who is Warren Buffett?

Warren Buffett was born in Omaha, Nebraska in 1930. His interest in business began at a young age when he sold gum, Coca-Cola and magazines door to door. He first visited the New York Stock Exchange at the age of ten and purchased his first shares at 11.

Buffett enrolled at the Wharton School of Business in Philadelphia in 1947 and transferred to the University of Nebraska, where he graduated at the age of 19. He returned to Omaha and worked as a stockbroker. Over the next decade, he opened partnerships that invested in multiple businesses, generating investment returns of more than 25% annually in some cases.

In 1962, he took over Berkshire Hathaway, a textile manufacturer that would become his main holding company. Over the next decades, Buffett invested in businesses including the Washington Post, the American Broadcasting Company, Coca-Cola and other major brands.

His unifying strategy for all his investments was to purchase them at a time when the market severely undervalued them compared to their true worth, often buying companies at prices less than the book value of their assets.

Today, Buffett is one of the richest people in the world with an estimated net worth of more than $100 billion.

Warren Buffett’s take on recession investing

According to Buffett, a recession is one of the best times to look for investment opportunities. In 2008, he wrote “Bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.”

He also advises investing with a long-term focus, stating that “investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well.” He continues, “Businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records for five, 10 and 20 years from now.”

To illustrate these points, let’s look at one of Buffett’s most successful investments: Coca-Cola. In 2007, before the Great Recession, Coca-Cola’s stock peaked at just under $32 per share. In March of 2009, it had fallen to $19.55 per share.

What truly changed about Coca-Cola’s underlying business in that roughly year-and-a-half span? The company still had a successful product with global distribution and one of the best-known brands across the globe. Very little changed about the business, what really changed was investor sentiment, the perception of the company during a time when people were simply fearful about their economic future.

Investors who saw past the fear and bought shares were rewarded. Coca-Cola shares currently sit at more than $63 per share.

Buffett encourages confidence. In 2010, he said to investors, “We’re still in a recession. We’re not gonna be out of it for a while but we will get out.” Nothing is permanent, so even when it feels like the economy will continue to shrink, remember that there’s a light at the end of the tunnel.

Investing in yourself

One piece of advice that Buffett offers is to invest in yourself. While this doesn’t focus on stock investing, that doesn’t mean it won’t pay dividends.

“The best thing you can do is to be exceptionally good at something,” Buffett says. “People are going to give you some of what they produce in exchange for what you deliver.”

Education and skills that you acquire are recession-proof. If you learn how to cook, you can cook in a good economy or a bad one. If you learn carpentry, you can build things in slow times and successful times.

Sometimes, the best way to invest is by putting in the effort to acquire a new skill that you can use to make money down the road.

How investors can use that advice

Warren Buffett is one of the most successful investors of all time, which means that you can’t expect to mirror his immense success simply by following his advice. However, listening to his wisdom can help you build a successful portfolio.

First of all, it’s important for investors to recall his words about recessions and the opportunity they present. Buffett advises that investors should, “be fearful when others are greedy and greedy when others are fearful.”

Recessions are times of fear, which means investors should be looking to stock up on shares at bargain bin prices.

However, Buffett also acknowledges that many people don’t have the time or the experience to identify the best investment opportunities available.

In 2020, during a shareholders meeting held virtually due to the COVID-19 pandemic, he noted, “In my view, for most people, the best thing to do is owning the S&P 500 index fund. There are huge amounts of money people pay for advice they really don’t need. If you bet on America and sustain that position for decades, you’d do far better than buying treasury securities.”

It’s easy to see why. Over the past century, the S&P 500 has produced an average return of about 10% for an inflation-adjusted return of just under 6.9%.

Investors who keep it simple and continue to buy into broad index funds even during downturns are historically likely to succeed, doubling their money roughly every decade without having to spend hours pouring over the markets.

The bottom line

Warren Buffett has offered sage advice over his long investing career. Given his success, it’s understandable why people would look to him with fears of an oncoming recession. The good news for everyday people is that his advice is relatively simple: keep your investments diversified, and don’t panic.

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