Investors are doing something we have never seen before. Here’s Warren Buffett’s best advice for the situation.


The stock market has been on an incredible run since S&P 500 (SNPINDEX: ^GSPC) It bottomed out from the previous bear market in October 2022. Since then, the index has risen around 70% at the time of writing. Many stocks have delivered even greater returns in that 26-month period.

Most people think those returns are just the beginning of a strong bull market. In fact, 56.4% of consumers expect stock prices to increase over the next year, according to The Conference Board’s most recent U.S. consumer confidence report. While this may not seem like an overwhelming proportion of the population, it is a record number since the survey began collecting this data 37 years ago.

Stock values ​​are influenced by two main factors: financial results and investor sentiment, and many companies driving the bull market have produced incredible financial results over the past two years. But smart investors can’t ignore that more and more people are optimistic about future stock market returns, which has driven prices up.

Warren Buffett has some advice suitable for the situation.

A close-up of Warren Buffett.
Image source: The Motley Fool.

By October 2008, the S&P 500 had already fallen 40% from its 2007 peak, and many investors thought things could only get worse. In an opinion piece for The New York TimesBuffett wrote: “Fear is now widespread and grips even the most experienced investors.” In fact, American consumers have never been more pessimistic about the future of the stock market, according to The Conference Board survey.

Buffett was forced to remind readers of the simple rule he established in Berkshire Hathaway‘s (NYSE: BRK.A) (NYSE: BRK.B) 1986 letter to shareholders. “We just try to be afraid when others are greedy and be greedy only when others are afraid.”

When Buffett wrote those words in 1987 (to summarize Berkshire’s 1986 financial results), he noted, “There is little fear on Wall Street.” At the time, investors had driven up share prices and, as a result, he was unable to find any suitable capital investments for Berkshire’s portfolio. Instead, he invested about $700 million of Berkshire’s cash in Treasury bonds.

I wasn’t particularly excited about it either. “At best, bonds are mediocre investments,” he said. “They just seemed like the least objectionable alternative at the time.”

In 2008, he applied the exact same idea to the market with opposite results. He moved his personal portfolio from 100% government bonds to 100% US stocks. It turned out to be an extremely fortuitous move for the Oracle of Omaha. The S&P 500 bottomed a few months after Buffett published his op-ed and produced incredible returns over the next 15 years.

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