CNBC's Becky Quick asked Warren Buffett a few weeks ago if he sided more with the view that a recession is now more likely or the more optimistic take that the U.S. economy remains strong. He responded that many of Berkshire Hathaway's (BRK.A 0.24%) (BRK.B 0.38%) businesses are already experiencing increased challenges.
To be sure, Buffett didn't predict a recession is on the way. He noted that in his 58 years at Berkshire's helm, he has "never opined an economic forecast of any use to the company." Still, Buffett seems to believe that an economic downturn could be on the way. Here's what he's doing to prepare for a recession.
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1. Build up cash
Buffett stated in the CNBC interview, "We want to be ready for anything that happens." He said, "We've got to keep plenty of cash on hand so that people are going to keep making intelligent decisions rather than those forced upon them."
The legendary investor is definitely practicing what he preaches. Berkshire reported a cash position of $125 billion at the end of 2022, including cash, cash equivalents, and short-term investments in U.S. Treasury bills.
That total is probably higher now. Buffett noted that Berkshire spent over $7 billion investing in Pilot Travel Centers plus $4 billion buying stocks. But he added, "The money comes in every day." He estimated that Berkshire is "probably up on cash and Treasury bills" so far this year.
2. Take a business-as-usual approach
CNBC's Quick asked Buffett if he was going to do anything differently with the potential of an economic downturn. He quickly replied with an emphatic, "No." Buffett clearly believes in taking a business-as-usual approach.
Buffett said that Berkshire doesn't try to change anything it's doing based on economic forecasts. At one point in the interview, he stated, "We just wanna buy good businesses run by people we like and trust and at a decent price. And we'll keep doing that."
We don't know yet which stocks Buffett bought during the first quarter of 2023. It's likely that he added to Berkshire's position in Occidental Petroleum. Of course, the one stock Buffett is probably buying the most is the one in which he's invested $66 billion over the last five years -- Berkshire Hathaway itself.
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Key Data Points
3. Think long-term
It should come as no surprise whatsoever that Buffett will continue thinking with a long-term perspective if a recession is coming. He'll do so even if the U.S. avoids an economic downturn.
Buffett said in the CNBC interview, "We're going to behave in a way that we'll be the last person standing." That's absolutely thinking long-term.
Should you follow his lead?
At age 92, Buffett has lived through multiple recessions during his lifetime. Should you follow his lead in preparing for a potential recession? It would be wise to do so, in my view.
Building up a cash position is a great move to make if a recession is on the way. Stocks tend to decline during recessions. Having plenty of cash on hand could enable you to capitalize on great buying opportunities.
But you shouldn't panic just because a recession might be around the corner. Adopting a business-as-usual approach as Buffett does can help you weather any storm. Continue looking for well-run businesses with solid management teams and attractive valuations, just like Buffett does.
Thinking long-term is a given regardless of what happens. Recessions come and go. Over long periods, though, the stock market has always generated positive gains. Arguably the most important factor behind Buffett building his net worth to over $113 billion is that he focused on the long term rather than the short term. You might never become a multibillionaire, but what worked for Buffett should work for you also.
