How Warren Buffett Makes Money in a Recession

Business Entrepreneur

Monday, May 1, 2023 18:00 (GMT+7)
18:00 5/1/2023

The risk of a US recession 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 a recession in the US and are looking for ways to overcome it. At this time, some common ideas about defensive stocks and Warren Buffett have flashed.

Specifically, according to the latest survey by Markets Live Pulse , financial experts and many investment funds now believe that Berkshire Hathaway's shares should be priced higher, and they bet that the group will do well even if the market falls into recession.

More than half of the 352 respondents were confident that Berkshire's profits would beat the S&P 500 over the next five years. And at last week's shareholder meeting with Warren Buffett, 80% of the corporation's shareholders expressed confidence in the billionaire.

It is known that in the investment community, the belief in the legendary Buffett's ability is increasing as economists recently stated that there is a 65% risk of recession in the US. According to them, this will be the time when the billionaire's disciplined value shines.

For survey respondents, investing in defensive stocks in the near term is the optimal choice because they have the potential to increase in value better than technology stocks. And that is exactly what Berkshire Hathaway is doing because billionaire Buffett feels that technology stocks are overvalued.

According to 80% of investors, the billionaire is definitely waiting for stocks that are priced below their real value - something he always reiterates in his annual letters to shareholders.

In addition, investors also believe that when buying Berkshire shares, there is a 5-10% fee to ensure profits from Warren Buffett. This is not wrong when the shares of this corporation have always brought annual profits of at least 9.5% over the past decade - much larger than the increase of 6.5% of the S&P 500.

So when billionaire Buffett showed interest in Japanese finance, global investors also agreed that the stock market in the land of the rising sun is currently more valuable and easier to make profits than US stocks. It is known that the potential profit rate of Japanese stocks is 5.8% - slightly higher than the potential figure of 5.3% for the S&P 500.

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

Therefore, one question that will certainly come up at billionaire Buffett's upcoming meeting is about the possibility of investing in Japan and the future of Berkshire's huge cash pile.

In 2023, the world economy is forecast to continue to fluctuate and cannot recover quickly. Many major economies still face risks such as slow GDP growth, inflation, unemployment, bad debt, etc. Zing readers are invited to read the 2023 Economic Bookshelf to grasp new economic knowledge and information in 2023.

Chang'e

Warren Buffett recession recession investment