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Saturday, January 28, 2023

Warren Buffett: the investor’s prediction of what 2023 will be like for the markets

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In the 14 years since then, there have been only two years, including 2022, in which the S&P 500 lost value, which equates to an 86% success rate.

Does that mean investors are in for more bad years? Probably. But that shouldn’t be alarming, for two reasons.

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First, investors don’t know when the next bear year will be, whatever the experts say. Buffett admitted in that same letter: “Neither Charlie Munger, my partner at the helm of Berkshire, nor I can predict winning and losing years in advance.” But even if the market “should” suffer further losses based on the historical relationship between bull years and bear years from the Buffett experience, it also seems unlikely that this would happen in 2023. In the past, two consecutive years of declines have been a rarity that only it has occurred twice since 1965, including one instance of three consecutive years of falls. But in the few times the situation has occurred, (oil crisis, dotcom, World War II or the Great Depression), the second year was worse than the first … and the third ended up being disastrous. The most recent case was from 2000 to 2002. The first year the losses were -10.14%, the year of the attack on the Twin Towers and the Pentagon caused the US selective to lose -13.04% while in 2022 losses amounted to -23.37%. And it took more than seven years for the S&P 500 to return to the levels at which it traded in 2009.

What if what awaits us in 2023 is a bullish market cycle? That’s how Warren Buffett sees it.

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Argentine ADRs showed a downward trend in the pre-market while Argentine shares had mixed data.

Despite the data, in the vast majority of cases, a bearish year is followed by a rise.

The key, as Buffett says, is that if the portfolio you have is diversified and expands systematically, the volatility of one or several years should not matter much. The investment thesis should not change based on the type of market you are in, although investment decisions do. Entering the market means that there will be bad years. Buffett acknowledged in this 2008 letter rescued by The Motley Fool that there are four elements he looks for in the companies he invests in, regardless of whether the cycle is good or bad. (See: Why Invest Like Warren Buffett Still Works?)

  • Develop a strong cash position.
  • Build moats that avoid damaging the portfolio at times of high volatility
  • Expansion of benefit streams
  • Encourage management, so that if there is a stock that has exceeded our volatility or risk management controls, we are not afraid to get rid of it.

Does Buffett think a bull market is coming?? Yes. In 2023, specifically? Nobody knows, but whatever the year, investors should focus on what they can control, and that includes building a portfolio of quality stocks and holding them for the long term for the best chance of success in the market.

Source: Ambito

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