The Stock Market Is Sending a Rare Warning. Here's Warren Buffett's Best Bear Market Advice.

Resumen detallado

As the market flashes a valuation warning sign, with the Shiller CAPE Ratio at levels last seen before major market downturns, now is the time to revisit Buffett's not-so-hidden…

Warren Buffett, the former CEO of Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB), was best known for his stock-picking acumen. He was such a successful investor that he earned the nickname The Oracle of Omaha. While investors paid close attention to the stocks Buffett bought, they probably didn't focus enough on what he did after buying them. And he followed the same approach through both bull and bear markets.

As the market flashes a valuation warning sign, with the Shiller CAPE Ratio at levels last seen before major market downturns, now is the time to revisit Buffett's not-so-hidden long-term secret. After buying a stock, he would hold it for the long term to benefit from the company's long-term growth. Here's why that's so important to remember today.

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You can simplify Warren Buffett's investment approach into three specific steps. First, find well-run businesses. Second, only buy those businesses when they are reasonably priced. Third, hold for the long term to benefit from the company's growth. The first two steps are far more exciting than the third, which can be as boring as watching paint dry or grass grow.

However, it is the most boring step that is likely to have the biggest impact on your long-term returns. And you don't have to look any further than the S&P 500 index (SNPINDEX: ^GSPC) to prove it. As the chart below highlights, even if you bought the S&P 500 just before a bear market started, you'd still end up growing your wealth over the long term if you just continued to hold it.

Some of the biggest bear markets and worst recessions in history look like nothing more than blips today. Even if you had terrible timing, history suggests that the steady growth of the index would make up for that mistake if you…

Hold…

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