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Whispers of an impending recession have been circulating for over a year now, and they show no signs of dying down anytime soon. If so, get ready to invest in the stock market — but only if you want to follow the lead of billionaire Berkshire Hathaway CEO Warren Buffett.
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“Be fearful when others are greedy, and be greedy when others are fearful,” Buffett famously wrote in a 2008 New York Times op-ed. This basically means that when others are afraid to invest, such as before or during a recession, you should take advantage by buying up stocks and other assets at discounted prices.
“In short, bad news is an investor’s best friend,” Buffett wrote in the op-ed. “It lets you buy a piece of America’s future at a discount.”
This rule is as true now as it was 15 years ago in the middle of the Great Recession: You shouldn’t spend your time trying to predict when the economy and stock market will recover, because even experts like Buffett can’t do it.
“I have no idea whether stock prices will be higher or lower in a month or a year,” Buffett wrote, “but the market will probably rise substantially long before sentiment or the economy turns around. So if we wait for Robin to show up, spring will be over.”
Here are five things Buffett recommends doing before a recession hits.
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Building Liquidity
As reported by The Motley Fool, Buffett told CNBC’s Becky Quick in early 2023 that his strategy ahead of a recession is to “keep enough cash on hand so that people continue to make smart decisions rather than being forced to do so.”
While they can’t pile up billions of dollars in cash like Berkshire Hathaway, they can take steps such as avoiding assets that could tie up cash.
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Invest in companies with proven track records
During an economic downturn or stock market downturn, blue chip stocks suffer just like everyone else, so you may want to be wary of investing in companies that are seeing their business slow or their share prices fall.
But as Buffett points out, that’s usually just a temporary problem.
“Most large companies will set new profit records in five, ten, or even twenty years’ time,” he writes.
Follow the usual game plan
Buffett told CNBC that he thinks people should take a “business as usual” approach before a recession: You don’t want to suddenly stop investing, but you also don’t want to overdo it by buying up loads of stocks that you wouldn’t normally buy.
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“We just want to buy good companies at the right price that are run by people that we like and trust,” Buffett told CNBC. “And we’re going to continue to do that.”
Avoid putting all your money into assets that won’t grow.
While it may be tempting to seek a safe financial haven before a downturn by putting all or most of your funds in risk-free checking or savings accounts, these accounts likely offer little to no growth potential.
But as Buffett wrote in the New York Times, stocks “will almost certainly outperform cash over the next decade, probably by a significant amount.”
Keep a long-term perspective
While some recessions last longer, they are all temporary. In contrast, the stock market has a pattern of rising over time, spanning decades.
This was the case following the Great Depression of the 1930s, the economic downturns and inflation spikes of the 1970s and early 1980s, the Great Recession of 2007-2009, and the COVID-19 pandemic earlier this decade.
Don’t panic if your investments drop before or during a recession. Instead, maintain Buffett’s mindset that the stock market will always rise again, because history has shown that it always does.
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This article originally appeared on GOBankingRates.com: 5 Things Warren Buffett Should Do Before the Recession Hits