Warren Buffett's Dire Stock Market Prediction: Here's How Investors Should Prepare

Warren Buffett is stepping down as CEO of Berkshire Hathaway but will remain chairman of the conglomerate’s board of directors and its largest shareholder. He’ll also still be the one and only “Oracle of Omaha.” This nickname is well-deserved because of Buffett’s staggeringly successful investing track record.

The “Oracle of Omaha” moniker seemed especially applicable at Berkshire’s recent annual shareholder meeting. Why? The legendary investor commented on the stock market turmoil experienced this year. More importantly, Buffett made a dire stock market prediction.

A “hair curler” is coming

Buffett was unfazed by the recent market volatility. He told Berkshire Hathaway shareholders, “What has happened in the last 30-45 days, 100 days, whatever this period has been, is really nothing.” The 94-year-old added, “This is not a huge move.”

Perspective is paramount. Buffett noted that the Dow Jones Industrial Average (^DJI 0.78%) hit 381 in September 1929, nearly one year before he was born. It eventually plunged as low as 42, a decline of roughly 89%. With that as background, he stressed, “This [the recent downturn] has not been a dramatic bear market or anything of the sort.”

However, Buffett also warned:

You will see a period in the next 20 years that will be a “hair curler” compared to anything you’ve seen before. The world makes big mistakes, and surprises happen in dramatic ways. The more sophisticated the system gets, the more the surprises can come out of left field.

Importantly, Buffett didn’t predict a stock market crash in 2025. He didn’t say that stocks would plummet next year but believes that a massive sell-off will occur at some point over the next two decades.

Why is the investing icon so confident about his dire prediction? Buffett explained, “That just happens periodically.”

Buffett is right

He’s right, by the way. The S&P 500 index (^GSPC 0.70%) has experienced 20% or more declines from its previous peak nine times since 1950. That translates to a steep plunge, on average, once every eight years or so.

^SPX data by YCharts.

Simply based on history, I suspect Buffett’s prediction will be proven right, too. There’s never been a 20-year period when the S&P 500 didn’t fall by at least 20% at some point. Believe the “Oracle of Omaha” when he prophesies that a “hair curler” market decline is coming in the future.

One of Buffett’s most famous quotes is, “Be fearful when others are greedy and greedy when others are fearful.” Once again, he was right. Stock market meltdowns present great buying opportunities for long-term investors.

How should investors prepare?

The main problem with Buffett’s dire prediction, though, is that we don’t know when it will be fulfilled. How should investors prepare?

Probably the most important thing to first do is adjust your mindset. Buffett told Berkshire shareholders at the annual meeting, “I know people have emotions, but you’ve got to check them at the door when you invest.” He said that the stock market is “a good place to focus your efforts if you’ve got the proper temperament for it. However, Buffett added that it’s “a terrible place to get involved if you get frightened by markets that decline and get excited when stock markets go up.”

Another key move is to always have some cash ready to invest when the opportunity arises. Buffett practices this principle. When stock valuations are frothy, he builds up Berkshire’s cash stockpile. When valuations are attractive, he puts the money to work.

In the meantime, though, don’t be afraid to buy stocks that meet your investment criteria. While Buffett has been a net seller of stocks in recent quarters, he has still purchased some stocks for Berkshire’s portfolio.

If and when the “hair curler” stock market predicted by Buffett comes, you can be ready for it. Making the right moves will ensure you’ll be able to keep your portfolio straight, even when the market gets frizzy.