How Warren Buffett makes money in a recession

Business Entrepreneur

Monday, May 1, 2023, 18:00 (GMT+7)
18:00 May 1, 2023

The risk of recession in the US, coupled with the prospect of the Fed raising interest rates, is prompting investors to buy defensive stocks and follow the path of the 92-year-old billionaire.

According to Bloomberg , global investors are worried about the possibility of an economic recession in the US and are looking for ways to overcome it. Meanwhile, some common ideas about defensive stocks and Warren Buffett have emerged.

Specifically, according to the latest Markets Live Pulse survey, financial experts and many investment funds now believe that Berkshire Hathaway's stock should be worth more, and they are betting that the conglomerate will perform well even if the market goes into recession.

More than half of the 352 people surveyed are confident that Berkshire's profits over the next five years will outperform the S&P 500. And at last week's shareholder meeting with Warren Buffett, 80% of the company's shareholders expressed confidence in the billionaire.

In the investment world, confidence in the abilities of the legendary Buffett is growing, especially after economists recently predicted a 65% risk of recession in the US. They believe this will be the moment when the billionaire's disciplined values shine through.

For those surveyed, investing in defensive stocks in the near future is a better option because they have the potential for better price appreciation than technology stocks. And this is exactly what Berkshire Hathaway is doing, as billionaire Buffett feels that technology stocks are overvalued.

According to 80% of investors, the billionaire is definitely waiting for stocks that are undervalued – something he repeatedly mentions in his annual letters to shareholders.

Furthermore, investors believe that when buying Berkshire stock, 5-10% of the profit is guaranteed by Warren Buffett. This is not inaccurate, as the company's stock has consistently delivered a minimum annual return of 9.5% over the past decade – significantly higher than the 6.5% increase of the S&P 500.

Therefore, when billionaire Buffett expressed interest in Japanese finance, global investors also agreed that the stock market in the Land of the Rising Sun is currently more valuable and offers easier returns than US stocks. It is known that the potential return on Japanese stocks is 5.8% – slightly higher than the potential 5.3% of the S&P 500.

Furthermore, US stocks are certain to face another interest rate hike, while Japanese stocks are not. In this Asian economy, investors even benefit from low borrowing costs because the central bank has controlled the yield curve.

Therefore, a question that will certainly be raised at billionaire Buffett's upcoming meeting is about the possibility of investing in Japan and the future of Berkshire's massive cash reserves.

In 2023, the global economy is projected to remain volatile and unlikely to recover quickly. Many major economies still face risks such as slow GDP growth, inflation, unemployment, and bad debt. Zing readers are invited to explore the 2023 Economic Book Collection to gain access to the latest economic knowledge and information for 2023.

Chang'e

Warren Buffett, recession, investment downturn.