The markets have experienced increased volatility over the past few weeks as concerns about a potential recession loom. Although the S&P 500 has rebounded slightly from recent dips, it remains almost 8% off its recent highs. The Nasdaq Composite is in correction territory, down about 12% from its highs.
This situation raises questions about whether legendary investor Warren Buffett has been preparing for such a downturn. Buffett’s investment strategy, executed through his holding company Berkshire Hathaway, has seen the company become a net seller of stocks for the past nine quarters. By the end of 2024, Berkshire Hathaway had its largest-ever cash position, exceeding $334 billion.
Buffett is well-known for his cautious approach during expensive market periods. The average S&P 500 price-to-earnings ratio is nearly 29, its highest in a decade outside of the 2020 market rebound.
Buffett’s cautious market moves
Buffett traditionally avoids overpaying for stocks and is wary of markets that seem overpriced. In his 1986 shareholder letter, Buffett commented on the exuberance of bull markets: “What could be more exhilarating than to participate in a bull market in which the rewards to owners of businesses become gloriously uncoupled from the plodding performances of the businesses themselves? Unfortunately, however, stocks can’t outperform businesses indefinitely.”
Buffett’s current selling activity does not necessarily indicate that he foresees an imminent market correction, as he avoids attempting to time the market.
However, it does suggest he perceives the market as being in a greedy phase. The S&P 500 has delivered more than 20% gains for the past two years, making it unlikely to repeat that performance in 2025. Many stocks are trading at attractive prices, which could be tempting for purchase.
In this year’s shareholder letter, Buffett mentioned that opportunities are often scarce but occasionally abundant, implying he’s looking for valuable investments during the correction. For individual investors, this market correction presents an opportunity to acquire shares of fundamentally strong stocks at favorable prices. Whether the market continues to decline or begins to recover, a long-term investment strategy aligned with Buffett’s principles could position investors for future success.
Image Credits: Photo by Kelly Sikkema on Unsplash
