Here’s How Investors Should Prepare

Buffett isn’t concerned about the recent stock market volatility but predicts a “hair curler” market is coming.
The legendary investor’s prediction is probably right, based on stock market history.
Investors can take several steps to be prepared, including adjusting their mindsets to embrace volatility.
10 stocks we like better than S&P 500 Index ›

Warren Buffett is stepping down as CEO of Berkshire Hathaway but will remain chairman of the conglomerate’s board of directors and its largest shareholder. He’ll also still be the one and only “Oracle of Omaha.” This nickname is well-deserved because of Buffett’s staggeringly successful investing track record.

The “Oracle of Omaha” moniker seemed especially applicable at Berkshire’s recent annual shareholder meeting. Why? The legendary investor commented on the stock market turmoil experienced this year. More importantly, Buffett made a dire stock market prediction.

Buffett was unfazed by the recent market volatility. He told Berkshire Hathaway shareholders, “What has happened in the last 30-45 days, 100 days, whatever this period has been, is really nothing.” The 94-year-old added, “This is not a huge move.”

Perspective is paramount. Buffett noted that the Dow Jones Industrial Average (DJINDICES: ^DJI) hit 381 in September 1929, nearly one year before he was born. It eventually plunged as low as 42, a decline of roughly 89%. With that as background, he stressed, “This [the recent downturn] has not been a dramatic bear market or anything of the sort.”

However, Buffett also warned:

You will see a period in the next 20 years that will be a “hair curler” compared to anything you’ve seen before. The world makes big mistakes, and surprises happen in dramatic ways. The more sophisticated the system gets, the more the surprises can come out of left field.

Importantly, Buffett didn’t predict a stock market crash in 2025. He didn’t say that stocks would plummet next year but believes that a massive sell-off will occur at some point over the next two decades.

Why is the investing icon so confident about his dire prediction? Buffett explained, “That just happens periodically.”

He’s right, by the way. The S&P 500 index (SNPINDEX: ^GSPC) has experienced 20% or more declines from its previous peak nine times since 1950. That translates to a steep plunge, on average, once every eight years or so.

Simply based on history, I suspect Buffett’s prediction will be proven right, too. There’s never been a 20-year period when the S&P 500 didn’t fall by at least 20% at some point. Believe the “Oracle of Omaha” when he prophesies that a “hair curler” market decline is coming in the future.

One of Buffett’s most famous quotes is, “Be fearful when others are greedy and greedy when others are fearful.” Once again, he was right. Stock market meltdowns present great buying opportunities for long-term investors.

The main problem with Buffett’s dire prediction, though, is that we don’t know when it will be fulfilled. How should investors prepare?

Probably the most important thing to first do is adjust your mindset. Buffett told Berkshire shareholders at the annual meeting, “I know people have emotions, but you’ve got to check them at the door when you invest.” He said that the stock market is “a good place to focus your efforts if you’ve got the proper temperament for it. However, Buffett added that it’s “a terrible place to get involved if you get frightened by markets that decline and get excited when stock markets go up.”

Another key move is to always have some cash ready to invest when the opportunity arises. Buffett practices this principle. When stock valuations are frothy, he builds up Berkshire’s cash stockpile. When valuations are attractive, he puts the money to work.

In the meantime, though, don’t be afraid to buy stocks that meet your investment criteria. While Buffett has been a net seller of stocks in recent quarters, he has still purchased some stocks for Berkshire’s portfolio.

If and when the “hair curler” stock market predicted by Buffett comes, you can be ready for it. Making the right moves will ensure you’ll be able to keep your portfolio straight, even when the market gets frizzy.

Before you buy stock in S&P 500 Index, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and S&P 500 Index wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $635,275!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $826,385!*

Now, it’s worth noting Stock Advisor’s total average return is 967% — a market-crushing outperformance compared to 171% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of May 12, 2025

Keith Speights has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.

Warren Buffett’s Dire Stock Market Prediction: Here’s How Investors Should Prepare was originally published by The Motley Fool

Source link