Warren Buffett has earned the right to command ears when he talks. His stock market success, both personally and through his company, Berkshire Hathaway (BRK.A -0.28%) (BRK.B -0.68%), is undeniable, and his investing wisdom is often timeless. However, commanding so much attention can be a double-edged sword.
At Berkshire Hathaway's annual meeting in Omaha, Nebraska, a couple of weeks ago, Buffett made the comment that the "incredible period" for the U.S. economy was ending. Given how much weight people give to Buffett's words, it's no wonder this comment made many people worry about the future of the U.S. economy.
Despite Buffett's comments, I don't believe investors should be worried.
What incredible period is Buffett referring to?
To understand Buffett's "incredible period" comments, it's important to have context on what he means. Generally, he means the past few years when interest rates were extremely low and there was an influx of cash into the economy because of government stimulus.
When interest rates are low (and virtually nonexistent at some points), borrowing money is cheap. This usually leads to businesses and consumers borrowing and spending more, stimulating the economy. Lower interest rates also mean people spend less on expenses like mortgages or car loans, leaving more disposable income.
Add that to the government stimulus injected into the economy -- and the spending that followed during the pandemic lockdown -- and the U.S. economy was seemingly on auto-boost. That's since changed, though.
Buffett's comments seem to be short-focused
Although Buffett is known for being a long-term investor and not giving too much weight to short-term factors (like quarterly earnings), his concerns about the U.S. economy seem more immediate than long-term. Short-term concerns about the U.S. economy are warranted. Much of the "doomsday" talk seems overblown, but some concern is appropriate nonetheless.
Nobody can say with 100% certainty what will happen in the economy in the near future. Buffett himself echoed that, saying, "Nothing is sure tomorrow, nothing is sure next year, and nothing is ever sure, either in markets or in business forecasts, or in anything else."
Still, there's a reason many experts are sending out "prepare for bad, hope for good" messaging.
Embrace the inevitable
Unfortunately, great economic times don't last forever. Here's a partial list recession in the past 60 or so years.
| Recession Name | Recession Dates | Length of Recession |
|---|---|---|
| COVID-19 | Feb. 2020-April 2020 | 64 days |
| Great Recession | Dec. 2007-June 2009 | 42 months |
| Dot-com bubble | March 2001-Nov. 2001 | 8 months |
| Early 1990s | July 1990-March 1991 | 8 months |
| Early 1980s | Jan. 1980-July 1980 | 7 months |
| Oil Crisis | Nov. 1973-March 1975 | 15 months |
| Late 1960s | Dec. 1969-Nov. 1970 | 11 months |
| Rolling adjustment | April 1960-Feb. 1961 | 10 months |
Data source: National Bureau of Economic Research / Length of recessions are approximate.
The U.S. has experienced a recession roughly once every six to seven years since World War II. They are as much a part of the economic cycle as any other phase. Expansion, peak, recession, trough -- rinse and repeat. You can't always be certain how long a recession will last, but you can expect one eventually will happen. They always do.
Look for opportunity in the madness
Recessions shouldn't be glossed over, because they have real consequences for many people. But if you're fortunate enough to have financial stability through one, you should embrace the opportunities it could bring.
Often, recessions spur lower stock prices. Instead of being discouraged, use that time to grab some great stocks trading at a discount and set yourself up for future gains.
From the beginning of December 2007 to the end of June 2009, the S&P 500 index (^GSPC 0.02%) dropped more than 37%. It's since increased by over 350%. From mid-February to mid-March 2020, it dropped more than 30%. It's since increased by over 80%. It's a trend you can follow from almost any recession.
Data source: YCharts
As a long-term investor, it's best to get used to the cyclical nature of the economy and stock market because it helps you view it from a glass-half-full lens. If you're holding on to a stock for the long run (which you should do in most cases), you shouldn't view down periods as a reason to jump ship -- use it as a opportunity to buy bargains. It's what Buffett has done time and again.
The stock market may not be the money-printing machine it seemingly was these past few years, but the U.S. economy's long-term prospects remain strong. Stay the course if you have the means, and you'll likely be glad you did.
