Warren Buffett: Should You Wait for a Market Crash Before Buying Stocks?

Hey guys! It seems like nearly every video on YouTube is warning investors that stock prices are too high and that they should be worrying about an upcoming stock market crash. With the stock market hitting all time highs, I needed to better understand how I should be navigating investing in a stock market where some of my favorite stocks are trading at record prices. To learn more about this, I turned to my favorite investor to study, Warren Buffett. I found this great clip of Warren discussing whether you should buy stocks in great companies or wait for a crash to buy them at a cheaper price. Make sure to stick around and we will discuss how you can apply these lessons from Buffett to your own portfolio. Enjoy!

One of my biggest lessons from studying Warren Buffett is the realization that nobody can consistently and accurately predict market crashes. Something I have realized is that if the greatest investor of all time, Warren Buffett, admits he can't predict stock market crashes, who am I to believe that I can predict them?

One of my favorite investing quotes is by another legendary investor, Peter Lynch. He says that “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”

There are two important questions I want to answer. 1.) Why are market crashes so difficult to predict and 2.) Knowing that fact, what can you do about it to invest successfully?

On the first point, stock market crashes are difficult to predict for a variety of reasons, but here are two reasons that I want to highlight. The first reason is that future economic conditions, which drive the stock market, are notoriously difficult to forecast. Things that cause slows down in the economy are almost always unexpected. Just take the economic situation in early 2020 that caused the steepest ever fall in the stock market. Just a couple of months earlier, who could have reasonably predicted that could have happened? The second reason is that stock prices and valuations may be high relative to historical trends, but that doesnt mean a crash is imminent. It may very well mean that they stay at these elevated levels for a long time and that future returns in the stock market are low as a result. While predicting a stock market crash makes for good news, it is very likely that the stock market may just stay around the same level for an extended period of time.

So now that we understand that stock market crashes are nearly impossible to predict, what can an investor do about it? According to Warren Buffett, the answer to that question is to buy great companies with durable competitive advantages and hold the stocks for the long term. This means buy stocks for which you truly understand the business and that will continue to generate high returns on invested capital for decades. Coca-Cola, American Express, and the railroad BNSF have all been examples of those types of companies in Buffett’s portfolio. Buffett makes it clear that it is worth paying up for a quality business. While you may have to pay 20% or 30% more than you would have liked to for the stock of a great company, over a long holding period, the cash that quality business will generate can validate the high price you paid for it.

So there we have it. Make sure to like this video and subscribe to the channel because it is my goal to make you a better investor, by studying the world’s greatest investors. See you next video!

[NeverLt]

I've learned alot from your channel. I read "One Up on Wallstreet, " and I enjoy how Peter Lynch explains that it's impossible to predict a stock crash so it's better to stay invested. The main lesson I took for from your channel is to invest in undervalued stocks with intrinsic values with a high margin of safety, but avoid the ones that have a high dividend yield because they are likely to underperform the market because they are not focused on improving their business.

[dakotah]

I got an ad warning about an upcoming stock market crash before this video 😂

[Je.rone_]

Youtubers have the same incentives as old media, which is to make fear mongering crash videos as often as possible

[dakotah]

Congratulations on 50k subscribers. I been with you since 100 subs 😂

[splinx]

1:01 1:40 1:55 2:14 2:34 2:56 4:38 4:55 5:57 6:43 7:54 8:08

[cogen]

But he does say if you find the price offensive, meaning overvalued, then don't buy it, warren buys at a discount price

[kristiant]

„if you don’t take the attitude of a mortician, waiting for a flu epidemic or something“… ehm.. Worst 2019 investment advice :D

[gunnars.]

"flu epidmic" at 3:08. He predicted the pandemic in the 90ies!

[alordi]

Today's market is not the market of old. A crash will come and be big. The old approach of buy and hold is gone. Quantitative easing, debt, stimulus, spread of socialism, etc

[KelechIwuaba]

When I read Phil Fisher's book and he said that in the book. I was like DAYUM STRAIGHT!!

[garry]

Oh I can verify for a fact I've lost out on a lot of gains by cashing out early anticipating a crash. Only to buy shares back at higher prices.

[chevyx]

Mr buffet is not a good lier. He just advised a young man to just shoved his hard earned money into “great companies” at market highs. He is a value investor. The way to go is to wait to the market to crash. U don’t have to predict them, just wait for a fifty percent pullback, then invest. Duh! Btw, u have no chance of really understanding these businesses.

[Seegie]

What you should do is go in 50% when the market is going up even if at all time highs. Keep the other 50% in cash and put that built up cash to play when the crash happens

[inertiaforce]

Investor Center what do you think about Verizon? Buffett just put $9.3 billion dollars into Verizon. Why do you think he did this?

[samcha]

So much junk food… that’s why I love Warren!

[alexpetrov]

Haha flu epidemic, like that could ever happen :)

[deepeshchetwani]

But he only bought companies after crash not anytime

[tongtongwang]

he is waiting now with 298 Billion at 95 years old

[jsauerfinancial]

Stocks have already crashed - Chinese stocks look like U.S. stocks 10 years ago