Transcription
You know, the financial world, it's a a a funny thing. Most of the time, it just hums along. People are buying stocks, selling stocks, checking their portfolios every morning with their coffee. Investors are chasing the next hot tech stock or or whatever cryptocurrency their nephew told them about at Thanksgiving. Economists are on CNBC debating whether GDP growth is going to be 2.1% or 2.3% this quart. It's all very normal, very routine. And most of the time, that's fine. Markets do their thing. People make money, people lose money, the world keeps spinning.
But every once in a while, and I mean very rarely, a voice emerges that you simply cannot ignore. Not because it's loud, not because it's sensational, but because it's built on something real. It's built on decades of experience on a track record that well that few people on this planet can match. I'm talking about myself here and and I don't say that to brag. I really don't. But the reality is I've been doing this for over 60 years. I've seen crashes. I've seen booms. I've seen bubbles inflate and pop. I've seen things that made people rich overnight and things that wiped out fortunes by Tuesday morning. And when someone with that kind of history, when someone who's been through the 7374 bare market, the 87 crash, the dot bubble, the 2008 financial crisis, when that person tells you something important, you should probably listen.
So, here's what I'm telling you, and and I want you to hear me clearly on this. A once-ina-lifetime crash is coming. Not might be coming, not could be coming, is coming. And the signs, they are already visible. They're right there in front of us for anyone who's willing to actually pay attention instead of just hoping everything works out fine.
Now, I know what some of you are thinking, Warren. You're always cautious. You're always worried. You've been saying the market's overvalued for years, and you're not wrong. I am cautious by nature. That's how you survive in this business for six decades. But this is different. the tone of what I'm saying now. It's different from what I've been saying for the past five or 10 years. There's an urgency here that I don't usually convey. This warning, uh, it it comes after months of mounting tension in the markets. And when I say tension, I'm not talking about the normal day-to-day volatility. I'm talking about fundamental problems that are getting worse, not better.
Inflation. And we can debate all day about whether it's transitory or persistent or whatever word the Fed wants to use this week, but the reality is it's eroding purchasing power. It's making life harder for regular people and it's creating uncertainty in the markets.
Then you've got geopolitical instability. I mean, look around the world right now. You've got conflicts. You've got tensions. You've got countries that used to be reliable partners now questioning their alliances. Trade relationships that took decades to build are being reconsidered. Supply chains that we all took for granted. They're fragile, more fragile than anyone wants to admit.
And debt, oh boy, the debt levels. Government debt, corporate debt, consumer debt. It's everywhere. rising at rates we haven't seen since well since right after World War II when we were literally rebuilding half the world except this time we're not rebuilding anything we're just spending stimulus here deficit financing there and nobody wants to talk about who's actually going to pay for all this eventually.
Then on top of all that you've got unprecedented monetary policy interventions. The Federal Reserve uh and I have tremendous respect for the people who work there I really do. They've been making it up as they go along for the past 15 years. Uh quantitative easing, uh zero interest rates, negative interest rates in some countries, buying mortgage back securities, things that would have been unthinkable when I started in this business. And now they're trying to unwind all of that without breaking anything. Good luck with that.
All of these things together, inflation, geopolitical instability, debt, monetary policy interventions, they've combined to create an environment that I can only describe as uncomfortably unstable. It's like it's like watching someone stack boxes higher and higher, and you know that eventually physics is going to win. Gravity doesn't care how clever you think you are. It's just a matter of when, not if.
Now, for decades, and Charlie Munger used to remind me of this all the time, God rest his soul. For decades, I've preached the same things over and over. Patience, prudence, rationality. I've told people to focus on fundamentals, not headlines. Don't panic when CNBC is screaming about a 2% market drop. Don't get greedy when your neighbor is bragging about how much money he made on some stock you've never heard of. Yes, stay rational. Focus on what matters. buy good businesses at fair prices and hold them forever. And I still believe all of that. I really do. Those principles haven't changed.
But the tone of what I'm saying now, that's changed because the situation has changed. There's urgency in my voice that maybe you haven't heard before. There's caution that goes beyond my normal be careful warning. And there's the unmistakable implication, and I'm not trying to sugarcoat this, that the next financial shock could dwarf anything we've seen in recent memory. Not bigger than the Great Depression necessarily. I'm not saying that. But bigger than 2008, possibly bigger than the dot crash, probably more painful than anything most people under 50 have experienced in their investing lives, almost certainly.
The seeds of this concern, they're not abstract. They're not theoretical. This isn't some academic exercise where we're debating economic models or or running computer simulations. This is real. Government debt in the United States has been rising at rates we haven't seen since the postworld war II era. And back then, we had a reason. We had just defeated fascism. We had saved the world. We were rebuilding Europe and Japan. people understood why we were in debt. What's the excuse now? We've been spending money we don't have on things we don't need, funded by stimulus programs and deficit financing and interest obligations that well that just keep growing.
In 2025, US national debt surpassed $36 trillion. 0. 36 trillion. I remember when a trillion dollar seemed like an unfathomable number. Now, we throw that word around like it's nothing. And the projections, they suggest the debt could approach $ 38 trillion zero cents within the next three years if we continue with our current fiscal practices, which of course we will because nobody in Washington has the political courage to actually cut spending or raise taxes in any meaningful way. It's always easier to just borrow more and let the next generation deal with it.
Now, you combine that debt accumulation with rising interest rates because the Fed had to raise rates to fight inflation, right? They had no choice. But when you've got $36 trillion, 0ents in debt, and interest rates go up even a little bit, the interest payments become astronomical. We're talking hundreds of billions of dollars a year just to service the debt, not to pay it down, just to pay the interest.
And then you add in a slowing economy. Growth is decelerating. Consumer spending is weakening. Business investment is cautious. Unemployment is starting to tick up, even if the headlines don't want to admit it yet. All of these things together, massive debt, rising interest rates, slowing economy, they create conditions where even a modest shock could have cascading effects could trigger something much bigger than the initial problem. It's like it's like a forest that hasn't had a fire in 20 years. All that deadwood is built up, all that dry brush, and everyone's walking around saying, "Well, we haven't had a fire in 20 years, so we must be fine." No, you're not fine. You're more vulnerable than ever. All it takes is one spark, one match, one lightning strike, and the whole thing goes up.
Analysts are looking at corporate balance sheets right now and and on the surface they look generally healthy. Most companies have decent cash positions. They're not obviously in trouble. But dig a little deeper. Those companies are now exposed to tighter credit conditions. Banks aren't lending as freely as they were two years ago. Borrowing costs are higher. If you're a company that needs to refinance debt that you took out in in 2020 at 2% interest and now you're refinancing at 7%, that's a huge hit to your profitability.
And then there are supply chain uncertainties. We learned during COVID that our just in time supply chain system is incredibly efficient when everything's working perfectly, but incredibly fragile when anything goes wrong. And things are still going wrong. There are still bottlenecks. There are still shortages. there's still geopolitical risks that could shut down shipping lanes or or cut off access to critical materials.
So, you've got all these vulnerabilities stacking up. Debt, interest rates, slowing growth, tight credit, supply chains, geopolitical tension, any one of these things alone, we could probably manage. But all of them together at the same time that that's what makes this a once- ina-lifetime situation. It's the confluence of factors. It's everything hitting at once. And the scary part, the part that keeps me up at night, honestly, is that most people don't see it coming. They're looking at the S&P 500 and it's still near all-time highs and they think everything's fine. They're looking at their 401k and it's up 8% this year and they think they're geniuses. Uh they don't understand that the market can stay irrational longer than you can stay solvent as Keen said. But eventually eventually reality catches up.
You know, I've always said that markets aren't driven by algorithms or or fancy computer models or economic equations. At their core, markets are driven by three things: trust, confidence, and stability. That's it. When people trust the system, when they have confidence in the future, when things feel stable, money flows, investment happens, businesses grow. But when any one of those three things starts to crack, that's when you get problems.
I like to compare investing to navigating a river. And and I've used this analogy for years because it really captures what this is all about. When the water's calm, when you can see clearly, when there aren't any rocks or rapids ahead, you can travel steadily, you make progress. Even an amateur can navigate calm waters pretty successfully. But when that river gets turbulent, when there are rapids and whirlpools and obstacles you can't see until you're right on top of them, that demands caution, that demands skill, that demands experience. And in my latest comments, the ones that have gotten people's attention, I'm warning you that the river is becoming increasingly treacherous. We're not in calm waters anymore. We haven't been for a while, but people have been pretending we are. They've been acting like everything's fine because well because their portfolios have been going up. But going up doesn't mean safe. Sometimes it just means you're heading toward a waterfall.
I'm looking at several factors converging all at once. And and when I say converging, I mean they're all coming together at the same time in a way that's really dangerous.
First, you've got elevated stock valuations. And I mean really elevated. We've had years, over a decade really, of quantitative easing. The Federal Reserve pumping money into the system, keeping interest rates at zero, buying bonds, making money cheap. What does cheap money do? It inflates asset prices. Stocks go up not because the companies are doing better, but because money has nowhere else to go when you can borrow at 1% or 2%, you can justify paying ridiculous prices for stocks because, well, what else are you going to do with your money? put it in a savings account earning 0.1%. So stock prices went up and up and up disconnected from actual earnings, actual value, actual fundamental. Now the Fed is tightening credit. They're raising rates. They're trying to pull money back out of the system. And suddenly those stock valuations that made sense when money was free, they don't make sense anymore when the cost of capital goes up. when you can get 5% in a Treasury bond, suddenly paying 30 times earnings for a stock doesn't look so smart.
Then you've got geopolitical instability in key regions. I'm not just talking about the usual tensions. I'm talking about actual conflicts, actual wars, actual breakdowns in the international order that's been in place since World War II. Trade routes are being threatened. Alliances are being questioned. Countries that used to cooperate are now competitors or worse adversaries.
And then there's the derivatives market. Oh boy, this is this is the thing that really worries me because most people don't understand it. They don't even know it exists. The derivatives market is massive. We're talking hundreds of trillions of dollars in notional value. And it's all interconnected. Banks have exposure to other banks who have exposure to hedge funds who have exposure to insurance companies who have exposure back to the bank. It's like a spiderweb except nobody really knows how all the threads connect until one of them breaks and the whole thing starts unraveling.
To me, the combination of these elements, the elevated valuations, the tightening credit, the geopolitical instability, the derivatives exposure, it signals a potential cascade. That's the word that scares me, cascade. because it means one thing leads to another leads to another and before you know it you've got a shock that's rippling across industries across countries across entire portfolios. It's not like 2008 where it started in the housing market and then spread. This time it could start anywhere. It could be a sovereign debt crisis in uh Europe. It could be a banking crisis in Asia. It could be a commodity shock. It could be a currency crisis. the trigger almost doesn't matter because the system is so fragile right now that any shock in any corner could set off the whole thing.
And investors, they're already beginning to feel the tension. You can see it in the markets if you know what to look for. Equity markets have been experiencing unusual volatility. I'm not talking about normal up and down days. I'm talking about swings that are sharper and more frequent than historical averages. The market goes up 2% one day, down 3% the next day, up 1.5% the day after that. That's not normal. That's not healthy. That's a sign of nervousness, of uncertainty.
Bond yields are rising. And and this is important to understand. When bond yields rise, it means investors are demanding higher compensation for risk. They're saying, "I'm not comfortable lending money at 3% anymore. I want 5%. Because I'm not sure I'm going to get paid back. That's a vote of no confidence in the system. That's investors saying they're worried.
Oh, the US dollar, which has been the world's reserve currency for 80 years, which everyone assumed was rock solid. It's showing signs of stress against other major currencies. The euro is strengthening. The yen is strengthening. Even some emerging market currencies are holding up better than they should be. That tells you something. That tells you confidence in the dollar is wavering.
Commodity markets are all over the place. Oil prices are reacting to geopolitical uncertainty. Industrial metals are responding to trade disruptions and supply chain bottlenecks. Agricultural commodities are dealing with climate issues and and export restrictions from major producing countries. Everything's on edge. everything sensitive to the slightest piece of news.
And here's what I want you to understand. These signals, they're not isolated events. They're not random fluctuations. They're early indicators of a systemic strain. They're warning lights on the dashboard. And when you see this many warning lights all lit up at the same time, you don't ignore them and hope for the best. You pull over. You check under the hood. You prepare for the possibility that something's about to break.
Uh but there's another element to this that I think is just as dangerous as the economic and financial factors. I'm talking about behavioral risks among investors. Uh the psychology, the emotions, the the human element that causes people to do stupid things when they're scared or greedy. Uh I've been watching investor behavior and and uh and I got to tell you, optimism has been excessive in some corners of the market. Not everywhere, but in some areas it's been downright euphoric. People are speculating. They're driving asset prices far beyond any reasonable measure of intrinsic value. Uh they're not investing anymore. They're gambling.
This is particularly evident in technology stock. I see companies with no earnings, no profits, no clear path to profitability trading at valuations that would make no sense even if they were printing money. Why? Because people believe, they have faith, they think this time is different. They think the old rules don't apply. Cryptocurrencies, uh, don't even get me started. I've been very clear about my views on crypto. It's speculation. It's not investing. And the fact that people have poured billions of dollars into assets that produce nothing, generate no cash flow, have no intrinsic value, it's a sign of how detached from reality parts of the market have become.
Leverage investment vehicles. These are things like margin accounts, leveraged ETFs, option strategies that multiply both gains and losses. People are using massive amounts of leverage to amplify their bets. When things are going up, that's great. You make 10%, but because you're leveraged three to one, you actually make 30%. Feels like genius. Feels like you figured out the secret to getting rich quick. But leverage works both ways. When things go down, you don't just lose 10%, you lose 30% or 50% or everything if you get a margin call. And when everyone's leveraged, when everyone's borrowed money to buy assets and those assets start falling, uh, that's when you get forced selling. That's when people who don't want to sell have to sell because their broker is demanding more collateral.
All of these rapid gains, the tech stocks that doubled in 6 months, the cryptocurrencies that went up 10fold, the leveraged bets that paid off again and again, they fueled a sense of invincibility. People start thinking they can't lose. They start thinking they're smarter than everyone else. They start taking more risk, not less, because everything they've touched has turned to gold. That's dangerous. That's really dangerous because when confidence collapses, and it will collapse, it always does eventually, the resulting panic can be swift, brutal, and indiscriminate. People don't carefully evaluate which assets to sell and which to hold. They just sell everything. They panic. They want out at any price.
I've seen it happen multiple times in my career. In 1987, the market dropped 22% in a single day, one day. Not because the economy collapsed overnight, not because of some catastrophic event, but because confidence broke, because people panicked, because selling begat more selling. In 2008, I watched financial institutions that had survived for 100 years disappear in a matter of weeks. Bear Sterns, Lehman Brothers, Meil Lynch gone. Not because they were fundamentally worthless, but because confidence evaporated. Because nobody trusted anybody else, because the system seized up.
And here's what I want to emphasize, and and this is really important. It's not enough to predict a downturn. Anybody can say the market's going to go down eventually. That's not useful. What matters is preparing for the human reactions that accompany a crash. The fear-driven selling, the liquidity shortages where you can't sell even if you want to because there are no buyers. The erosion of trust in financial institutions where people start pulling their money out of banks, out of brokerage accounts, out of the system entirely. That's the cascade I'm worried about. Not just asset prices falling, but the psychological breakdown, the loss of confidence, the panic, because once that starts, it's very hard to stop. The Fed can cut interest rates to zero. The government can promise bailouts. None of that matters. If people don't believe anymore, if trust is gone, the system um doesn't work.
You know, when I talk about these risks, these systemic problems, I know some people think, "Well, Warren, you're worth billions. What do you care if the market crashes? You'll be fine." And and they're right. I will be fine. But that's not what this is about. I'm not worried about myself. I'm worried about the average American, the school teacher, the nurse, the electrician, the small business owner, the people who are counting on their 401k to actually be there when they retire. Because for the average American, the implications of what I'm warning about, they're profound. These aren't abstract numbers on a screen. This is real life.
Retirement accounts that people have been building for 30 years could lose 40% of their value in a matter of months. Pensions that workers were promised, and let me tell you, many of those pension funds are already underfunded. They could face significant stress if the market experiences a major correction. Home values. For most Americans, their house is their biggest asset. It's where most of their net worth is tied up. And if we get a real crash, if credit tightens up, if unemployment rises, if confidence collapses, housing prices are going to come under pressure. Maybe not everywhere, maybe not as bad as 2008, but enough to hurt, enough to wipe out equity that people were counting on. Personal savings. People who did the right thing, who saved money, who didn't spend everything they earned, they're going to watch the purchasing power of those savings erode if we get inflation alongside the crash. Or they're going to see the value of their investments fall if they're in stocks or bonds or or anything that's not sitting in cash under their mattress.
This is why I keep coming back to the same principles I've been preaching for decades. Rational long-term planning, not speculation, not trying to get rich quick, not betting on whatever crypto your nephew is talking about. Just solid, rational, long-term thinking about your finances. Focus on quality investments. And when I say quality, I mean companies that produce real products, generate real cash flow, have real competitive advantages, companies that will still be around and still be profitable in 10 years, 20 years, 30 years, not whatever stock is up 50% this month because of some rumor, some meme or or whatever nonsense is driving it. Maintain adequate liquidity. This is so important and people don't think about it until it's too late. You you need cash. Real cash. Not your entire net worth sitting in stocks where you might have to sell at the worst possible time. Not everything tied up in real estate where you can't access it quickly. Cash enough to live on for 6 months, a year, maybe longer if you're close to retirement. Because if the market crashes and you lose your job at the same time, and those things tend to happen together, you need to be able to survive without having to sell your investments at fire sale prices. And for God's sakes, avoid the temptation to chase short-term gains. I see this all the time. People hear about some stock that went up 200% and they think, "Why didn't I buy that?" So, they go looking for the next one. They start trading more risk. They start trading more frequently. They convince themselves they can spot the winners. Hey, you can't. I can't. Nobody can consistently. Sure, you might get lucky once or twice, but over time, chasing short-term gains is a losing strategy. The transaction costs kill you, the taxes kill you, and most importantly, you end up holding the bag when the music stops because you bought at the top thinking it was going higher.
Those who rely on leverage, using borrowed money to invest, they're particularly vulnerable. And this scares me because I know there are a lot of people out there who don't fully understand what they're doing. They've got margin accounts. They're using options. They're trading leveraged ETFs. And when things are going up, it feels great. Feels like free money. But market contractions amplify losses exponentially when you're leveraged. If the market goes down 20% and you're leveraged 2 to1, you don't lose 20%, you lose 40% or more if you get margin calls and have to sell at the bottom. Uh I've seen people lose everything because they were using leverage and couldn't handle the volatility.
And here's what people need to understand. This warning isn't limited to the domestic economy. We don't live in a world anymore where what happens in America stays in America. Global markets are interconnected. They're woven together through trade, through finance, through supply chains, through currency markets. A shock in one region quickly propagates elsewhere. It's almost instantaneous in today's world.
Rising tensions in Asia, and I'm talking about China and Taiwan, uh North Korea, trade disputes, uh territorial claims in the South China Sea. any one of those situations could escalate into something that disrupts global commerce. Uh and if that happens, it doesn't just affect Asian stock markets, it affects every instability in Europe is another concern. You've got ongoing issues with energy security, with immigration, with the strength of the European Union itself. Brexit was just the beginning. There are other countries where populist movements are questioning whether they want to stay in the EU. If the EU starts to fracture, if the euro comes under real pressure, u that's a global problem, not just a European problem. Political uncertainty in emerging markets is always a wild card. These are economies that are growing fast, but they're also less stable. a coup here, a currency crisis there, a sudden change in government policy, and billions of dollars of capital can flee in a matter of days. And where does that money go? Usually to safer assets in developed markets, which creates its own set of distortions and problems.
What I'm trying to tell you is that a once-in-a-lifetime crash when it comes, it's not going to be confined to stocks alone. That's not how these things work. It's going to be a synchronized shock. Stocks will fall, sure, but bonds could fall too, especially if there's a crisis of confidence in government debt. Commodities will get hammered as demand collapses. Currencies will swing wildly as investors flee to safety. Real assets like real estate will come under pressure as credit dries up and uh buyers disappear. Everything moves together in a real crisis. Uh that's what makes it so dangerous. You can't just say, "Well, I'll sell my stocks and buy bonds because the bonds might be falling, too." You can't say, "I'll hold real estate." Uh, because you might not be able to sell it and you might not be able to refinance it and the value might be dropping anyway.
This kind of synchronized shock challenges everyone. Policy makers don't know what to do because the usual tools don't work. You can't just cut interest rates if rates are already low. You can't just print more money if inflation is already a problem. You can't just bail out banks if the public has lost faith in the whole system. Central banks around the world, the Federal Reserve, the European Central Bank, the Bank of Japan, all of them, they're going to be scrambling. They'll try coordinated interventions. They'll try currency swaps. They'll try emergency lending facilities. But if confidence is gone, if trust is broken, those technical measures might not be enough and investors, everyday investors like the people watching this video, they're going to be facing choices they never thought they'd have to make. Do you sell and lock in your losses? Do you hold on and hope it recovers? Do you try to buy more at lower prices even though it's terrifying? There are no easy answers in a real crisis.
Now, my reputation, and I say this not to brag, but just as a matter of fact, my reputation lends weight to this caution. I've been doing this for over 60 years. I've built Berkshire Hathaway from a failing textile mill into one of the most successful companies in the world. I've generated returns that, well, that speak for themselves. Few investors command the trust and credibility that I've earned over those decades of successful investing. So, when I speak of risk, the world tends to listen. And that's good. It's how it should be because I'm not crying wolf here. I'm not saying the sky is falling just to get attention. I've consistently warned against the same things for my entire career. Excessive speculation, leveraged bet, reliance on short-term market trends, ignoring fundamentals, confusing a bull market with genius. And today, my message is clear, and I need you to hear this. We are approaching an inflection point, a moment where things could go one way or another, and complacency, just assuming everything will work out fine because it always has before, that could be extraordinarily costly.
I'm not saying sell everything and hide under your bed, that's not rational either. But I am saying wake up, pay attention, understand the risks, prepare for the possibility that things could get rough, maybe even very rough. Because if you're not prepared, if you're caught off guard, if you're overleveraged, if you're counting on things continuing exactly as they've been, you could lose a significant portion of your wealth. Wealth that took you decades to build, gone in a matter of months. And the people who get hurt the worst in these situations are always the ones who thought it couldn't happen to them. The ones who thought they were being smart by using leverage. The ones who thought they were diversified because they own 10 different tech stocks. The ones who thought real estate always goes up. The ones who believed that this time is different. Human nature is never different. Human nature doesn't change. Market cycles don't disappear. What goes up beyond rational valuations eventually comes down. Maybe not today, maybe not next month, but eventually always. And when it happens, it happens fast.
You know, the markets, they responded exactly the way you'd expect. After I made these statements, after the word got out about what I said, trading volumes surge, and I mean really surge. We're talking about activity levels that you usually only see during major news events or or when something significant breaks. Volatility indices spiked. The VIX, that's the fear gauge basically. It jumped up significantly. Uh people were nervous. You could feel it in the trading patterns. Investors scrambled. And when I say scrambled, I mean they dropped everything they were doing and started assessing their exposure. Uh portfolio managers were pulling all-nighters, running stress tests, figuring out what happens to their positions if the market drops 20, 30, 40%, rebalancing portfolios frantically, moving money around, trying to get ahead of what they think might be coming.
And where did they move it? Well, that's interesting. Gold saw increased demand. Suddenly, everyone remembered that gold is the classic safe haven. It doesn't pay dividends. It doesn't generate cash flow. But when people get scared, really scared, they buy gold because it's tangible. It's been valuable for 5,000 years, and it's nobody else's liability, which matters when you're worried about the financial system itself. Treasury securities, US government bonds, they also saw increased demand, which is it's kind of ironic when you think about it because part of what I'm warning about is the massive government debt. But even with all that debt, treasuries are still considered the safest assets in the world. When people panic, when they want absolute safety, they buy treasuries. They accept lower returns, sometimes even negative real returns after inflation just to know their money is safe.
These riskoff strategies dominated the early trading session after my comments. Risk off means people are moving out of risky assets like stocks, especially speculative stocks, and into safe assets. It's the opposite of risk on where everyone's chasing growth and reaching for yield and and being aggressive with their money. Risk off is defensive. It's I don't know what's going to happen, but I want to protect what I have.
Now, has the crash happened yet? No. We haven't seen a crash. The market hasn't collapsed. things are still functioning, but that's not really the point. My words act as both a warning and a call to action. I'm not trying to cause a crash. I'm not trying to create panic. What I'm trying to do is get people to to wake up and evaluate their risk now. Now, before it's too late. Because here's the thing about crashes. By the time they happen, it's too late to do anything about it. If you wait until the market's already down 20%, to start thinking about your risk exposure, you've already lost. The time to evaluate risk is when things seem calm, when your portfolio is still worth something, when you have options, not after the panic has started and everyone's rushing for the exits at the same time.
My approach to this, and people who've followed me for years know this, it's fundamentally pragmatic. I don't predict crashes lightly. I'm not one of these doom and gloom guys who's been predicting a crash every year for the last 20 years and finally gets to say I told you so when it eventually happens. Uh um that's not useful. That's that's not helpful to anyone. And I don't indulge in sensationalism. I don't make dramatic statements just to get headlines or or to drive traffic to a website or sell a newsletter. That's not who I am. My advice is rooted in something real. It's rooted in decades of observing cycles, crises, and recoveries. I've seen this movie before. Maybe not exactly the same plot, but were the same themes, the same human behaviors, the same market dynamics.
I point to historical parallels because history doesn't repeat, but it rhymes. As Mark Twain supposedly said, the market collapse of 1987. I was there. I watched it happen. Black Monday, the market dropped 22% in a single day. 22%. People lost fortunes, firms went bankrupt, portfolios were destroyed, and you know what preceded that crash? Warning signs. Valuations were elevated. Program trading was creating instability. There was complacency. People thought the good times would just continue forever. And then boom, it all came apart in a matter of hours.
The dot bubble at the turn of the millennium. I warned about that one, too. And people thought I was out of touch. They said I didn't understand the new economy. They said the internet changed everything. That old metrics like price toearnings ratios didn't matter anymore. Companies with no profits were valued in the billions because they had comm. And I said, "This is crazy. This is speculation, not investing." And people ignored it. They kept buying. And then the bubble burst. The NASDAQ fell 78% from its peak. 78%. Companies that were worth billions became worthless. Retirement accounts got cut in half. People who thought they were set for life suddenly had to keep working for another decade.
The 2008 financial crisis, that one nearly brought down the entire global financial system. We were days, maybe hours away from a complete meltdown. Banks couldn't borrow. Money market funds were breaking the buck. commercial paper markets seized up. If the government hadn't intervened, and I'm not saying they handled it perfectly, but they did intervene, we could have seen a depression worse than the 1,930s. And you know what preceded 2008? Warning signs. Housing prices were ridiculous. Mortgage standards had evaporated. Banks were leveraged 30 to1 or more. Derivatives markets were enormous and poorly understood. uh people saw the warning signs, but they ignored them until it was too late.
Now, in 2025, I'm arguing that we're seeing a convergence of factors that make complacency particularly dangerous. We've got all the ingredients for a crisis: high valuations, massive debt, geopolitical instability, tight credit, fragile supply chains, and on top of all that, complacency. People think it can't happen or they think the Fed will just bail everyone out again or they think somehow they'll be able to get out before it gets bad. That's dangerous thinking. That's the kind of thinking that gets you hurt because when the panic starts, you can't get out. There's no exit. Everyone's trying to sell at the same time and there are no buyers.
So, what should investors do? I've been asked this question a hundred times in the last few days and and my answer is the same every time. Three key principles. That's it. Three things you need to focus on.
First, preserve capital. Your number one priority right now should not be making more money. It should be protecting what you have. If you've built up a portfolio over 20 or 30 years, your first job is to make sure it's still there in 5 years. Don't get greedy. Don't reach for an extra 2% of return by taking unnecessary risks. Preserve what you have.
Second, maintain liquidity. Cash is not trash right now. I know that's what everyone was saying a few years ago when inflation was high and interest rates were zero. Cash is trash. You're losing money holding cash. But you know what? Cash gives you options. Cash lets you sleep at night. Cash means you don't have to sell your stocks at the worst possible moment because you need money to pay your bills. I recommend having at least six months of living expenses in cash, maybe more if you're close to retirement or if your income is uncertain. And when I say cash, I mean actual cash or cash equivalents, money market funds, short-term treasuries, things you can access immediately without taking any losses.
Third, focus on intrinsic value rather than market hype. This is this is the principle I've built my entire career on. Buy things that are worth more than you're paying for them. Buy businesses that generate real cash flow, that have real competitive advantages, that will still be around in 20 years. Ignore the noise. Ignore the hype. Ignore what your neighbor is buying or what some uh influencer on social media is promoting. Intrinsic value. That's what matters. If you buy assets for less than they're intrinsically worth, eventually, maybe not tomorrow, maybe not next month, but eventually the market recognizes that value and you do fine. But if you buy assets for more than they're worth because everyone else is buying them because they're going up because you don't want to miss out, that's when you get hurt.
Preparation, discipline, and rational decisionmaking are the only reliable safeguards against systemic shocks. I can't emphasize this enough. You can't predict exactly when or how a crash will happen. Nobody can. But you can prepare for the possibility. You can position your portfolio defensively. You can maintain liquidity and discipline. That means sticking to your plan even when everyone around you is panicking or or when everyone around you is getting greedy. Discipline means not chasing performance, not selling at the bottom out of fear, not buying at the top out of FOMO, just sticking to sound principles regardless of what everyone else is doing. In my view, and I've seen this play out many times, those who are caught unprepared will face the brunt of the financial storm. They're the ones who will lose 50%, 60%, maybe more. They're the ones who'll have to postpone retirement, who'll have to sell their house, who'll be working into their 70s because their portfolio got wiped out. But those who remain disciplined, who prepare, who follow sound principles, they have the opportunity to navigate the turbulence safely. They might not avoid losses entirely. Even the best prepared investors will see their portfolios decline in a real crash, but they'll survive. They'll be okay. And when it's over, when the dust settles, they'll be in position to recover and even to take advantage of opportunities that emerge.
You know, as word of my warning spreads and it's spreading fast, I I can tell you that the broader financial community is taking notice, and I mean really taking notice, economists are pouring over data. Analysts are adjusting their forecasts. Policy makers at the Fed, at the Treasury, at central banks around the world, they're reviewing their assumptions. They're asking themselves, "Is Buffett seeing something we're missing? Are we too complacent? Have we underestimated the risks?"
Now, not all of them agree with me. And and that's fine. That's how it should be. Not everyone agrees with my assessment that we're facing a once- ina-lifetime crash. Some people think I'm being too pessimistic. Some think the system is more resilient than I'm giving it credit for. Some think the Fed has more tools than I believe they do. That's their right. That's their opinion. But here's what's interesting. Even the people who disagree with me, even the most optimistic economists and analysts, few of them dispute that risks are elevated. Nobody's saying everything's perfect. Nobody's saying there's nothing to worry about. They might disagree on the magnitude, on the timing, on the likelihood, but they generally agree that markets are fragile right now. That caution is warranted, that this is not the time to be complacent.
And for ordinary Americans, the people who aren't economists or professional investors or policy makers, the message is simple but urgent. Really urgent. Long-term savings should be protected. that 401k you've been building for 30 years, that IRA you've been contributing to every year, those savings need to be protected. This is not the time to have everything in aggressive growth stocks or or speculative investments or things you don't understand. Risk exposure needs to be evaluated. Sit down, look at your portfolio, really look at it, not just glance at the total value and feel good because it's up this year. Look at what you own. Look at how much risk you're taking. Look at how leveraged you are. Ask yourself honestly, if the market dropped 40% tomorrow, could I handle it? Could I avoid selling at the bottom? And speculation needs to be minimized. If you've been dabbling in options or or trading meme stocks or putting money into cryptocurrencies you don't understand, now's the time to stop. Take your chips off the table. Get back to basics. focus on preservation, not speculation.
For investors, uh, professional investors, institutional investors, people who do this for a living, the challenge right now is to balance opportunity with prudence because there are still opportunities out there. There are still good companies trading at reasonable valuations. There are still investments worth making. Uh, you don't just sell everything and sit in cash forever. That's not smart either. Uh but you have to balance that opportunity seeking with prudence, with caution, with an understanding that the next major correction may arrive sooner than you think and with greater intensity than most people expect. So maybe you don't put as much capital to work as you normally would. Maybe you keep more dry powder. Maybe you focus on higher quality, more defensive positions. Maybe you use options to hedge some of your exposure.
For corporations, the challenge is similar. You you can't just stop operating because Warren Buffett thinks a crash is coming. You still have to run your your business. You still have to invest in growth. You still have to compete. But you need to be prudent about it. Maybe you don't take on that extra debt right now. Maybe you build up your cash reserves a little more. Maybe you delay that big acquisition until there's more clarity. Maybe you focus on strengthening your balance sheet rather than maximizing short-term returns.
And for policy makers, this is tricky because they're in a tough spot. They can see the same warning signs I'm seeing. They know the risks are elevated, but they also don't want to cause a panic. They don't want to talk down the economy or or create a self-fulfilling prophecy where their warnings actually cause the crisis they're warning about. But they need to recognize, and I hope they're recognizing this, that the next major correction could require a response that's different from what they've done in the past. They may need to coordinate internationally. They may need to be creative. They may need to move faster and more decisively than in previous crises and they need to start thinking about those scenarios now, not after the crisis has already started.
In short, and I want to be very clear about this, my warning is both stark and measured. It's stark because I'm talking about a once-in-a-lifetime event, a major crash, something that could rival or exceed what we saw in 2008. Now, that's serious. That's not something to brush off or ignore, but it's also measured because I'm not saying sell everything tomorrow. I'm not saying the world is ending. I'm not telling people to panic. What I'm saying is be prepared, be cautious, be smart. The markets may continue to fluctuate in the short term. We might go up for a few more months. We might even hit new highs. Bull markets can continue longer than anyone expects. But the structural risks, the deep fundamental problems in the system, those are growing. They're not going away. They're getting worse, not better.
Whether it's the erosion of confidence in institutions, and I see that everywhere. People don't trust the Fed like they used to. They don't trust Congress. They don't trust the banking system. or whether it's high leverage, all the borrowed money slloshing around the system, or geopolitical instability, the conflicts, the tensions, the breakdown of the post-war order, or inflated valuations where stocks are priced for perfection, and there's no room for error. All of these ingredients for historic financial shock are present. They're here. They're real.
I don't pretend to know the exact timing. Nobody does. Charlie used to remind me of this all the time. You can't predict when something will happen. You can only say that it will happen eventually. Could be next month, could be next year, could be three years from now. I don't know. Nobody knows. Anyone who tells you they know exactly when the crash is coming is lying to you or or fooling themselves. Um but my call is unmistakable. I'm not being subtle here. I'm not hedging my words. Prepare, protect your capital, and proceed with caution. those three things. That's what you need to do right now.
Because in the world of finance, and I've been in this world for over 60 years, I've seen every kind of market, every kind of crisis, every kind of boom and bust. History shows that ignoring warning signs can be the most expensive mistake of all, the most expensive. People who ignored warnings before the 1987 crash, they paid for it. People who ignored warnings before the dotcom bubble burst, they paid for it. People who ignored warnings before 2008, they paid dearly for it. And every single time, every single crash afterward, people say, "Well, the signs were there. We should have seen it coming. Why didn't we listen?" And the answer is always the same. They didn't listen because things were going well, because their portfolios were up. because listening would have meant doing something different, something uncomfortable, because it's easier to just assume everything will be fine. Uh, but everything isn't fine right now. The warning signs are flashing red. And I'm telling you this not to scare you, not to make you panic, but to give you time. Time to prepare, time to adjust, time to protect what you've built. Because once the crash starts, once it really gets going, it'll be too late. The time to act is now while you still have options, while you still have time. So take this seriously. Review your portfolio. Check your risk exposure. Build up your cash reserves. Focus on quality investments. Avoid speculation. Avoid leverage. And most importantly, most importantly, don't assume that this time is different. Don't assume you'll see it coming in time to get out because that's what everyone always thinks. And that's exactly why they get caught when it happens.