Warren Buffett: The 4 Assets That Made Me Billions In Every Crash

You know, I've lived through a lot of crashes, more than I can count, really. And people always ask me the same question after each one. Warren, they say, how did you make money when everyone else was losing their shirts? And the answer, it's not what they expect. See, I didn't make money during the crashes. Not exactly. I made money because I owned the right things going into the crashes. And those things, those assets, they're what protected me, what allowed me to not just survive, but thrive. I'm 94 years old now, and I've been through, what, 12 major crashes, 15, something like that. Like the dot-com bust in 2000, the financial crisis in 2008, the COVID crash in 2020. And you know what? Every single time, I had the same four types of assets, the same four things in my portfolio, protecting me, growing my wealth, even when everything else was falling apart. And today, I want to tell you what they are. Because if you're going to invest for the long-term, if you're going to build real wealth, you need these four things, not one or two, all four. They work together. They protect each other. They pause. They create a fortress around your wealth. And when the crashes come, and they always come, you'll be ready. Well, let me start with the first one, the most important one, really, cash. Now, I know what you're thinking. Cash? Warren, cash doesn't grow. Cash just sits there. Inflation eats away at it. And you're right. Cash is a terrible long-term investment. But here's what people don't understand. Cash isn't an investment. It's ammunition. See, during a crash, when everyone's panicking and selling, and the market's down 30, 40, 50 percent, that's when the opportunities show up. That's when great businesses go on sale, when you can buy a dollar for 50 cents. But you can only take advantage of those opportunities if you have cash. If you're fully invested, if every dollar you have is tied up in stocks, then when the crash comes, you can't do anything. You just watch. You watch these incredible opportunities go by, and you can't act on them. I always keep cash, always, at Berkshire. We usually have somewhere between $20 billion and $150 billion in cash. People think that's crazy. They say, Warren, you're losing money to inflation. You should invest that cash. But I'm not losing money. I'm being patient. I'm waiting for opportunities, for crashes, for moments when I can deploy that cash at incredible prices. Let me tell you about 2008, the financial crisis. Everything was falling apart. Banks were failing. The stock market was in free fall. And I had cash, lots of cash. So I made deals. I invested in Goldman Sachs, General Electric, Bank of America later on. Not because I was brave, not because I was smarter than everyone else, but because I had cash, and they needed it. And those investments, they made me billions, literally billions of dollars. But here's the thing. I could only make those investments because I'd kept cash, because I hadn't been fully invested when everything was going up. I'd been patient. I'd been waiting. You see, cash, it gives you options. When you have cash, you can act when others can't. You can be greedy when others are fearful. But if you don't have cash, if you're fully invested, you're stuck. You can only watch. And watching opportunities go by, that's the worst feeling in investing. Now, how much cash should you keep? That depends on a lot of things. Your age, your risk tolerance, how much you need to live on. But as a general rule, I'd say you should always have at least six months of living expenses in cash. That's your emergency fund, your safety net. And beyond that, you should have cash you can invest. Dry powder, I call it. How much? Again, it depends. But I'd say somewhere between 10% and 30% of your investable assets. When the market's expensive, when everything's going up and people are euphoric, keep more cash. When the market's cheap, when there's blood in the streets, keep less cash because that's when you want to be deploying it. The key is always have some. Never be fully invested because the crashes, they always come. And when they do, cash is king. Well, let me move on to the second asset, high quality businesses. Not just any businesses, not stocks you hope will go up, but real high quality enduring businesses. See, during a crash, most stocks go down. Everything goes down, really. But not all businesses are hurt equally. Some businesses, the great ones, they actually get stronger during crashes because their weaker competitors fail and they can pick up market share, pick up assets cheap. And when the economy recovers, they're in an even better position than before. Let me give you an example. Coca-Cola. I bought it in 1988 and I've held it through, what, five major crashes now? And every time, every single time, Coke comes through just fine. Why? Because people keep drinking soda. Even in a recession, even in a depression, they might drink a little less, but they still drink it. And Coke's got this incredible brand, this global distribution system, these relationships with every retailer and restaurant on the planet. You can't replicate that. It's a moat, a competitive advantage that just gets wider over time. So when the market crashes, when Coke's stock goes down 30 or 40%, I don't panic because I know the business and I know the business is fine. Eventually, the stock price catches up to the reality. It always does. You see, that's what high quality businesses do. They survive the crashes. They keep making money, keep serving customers. And if you own them, if you just hold on and don't panic, you'll be fine. Better than fine, actually, because when the market recovers, you'll be back to where you were and then you'll keep going up. But if you own low quality businesses, businesses that are leveraged or cyclical or dependent on the economy, they might not survive the crash. They might go bankrupt. And then your investment is worth zero. That's the difference. That's why quality matters so much. Now, what makes a business high quality? Well, there are a few things I look for. First, it needs to have a strong competitive advantage, a moat, something that protects it from competition, a brand, a network effect, economies of scale, something. If it doesn't have a moat, then competitors can come in and eat its lunch and eventually it'll struggle. Second, it needs to generate cash, lots of cash, not just accounting earnings, not just revenue, real cash that comes into the business. Because cash, cash is what matters. Cash is what lets the business survive tough times, pay dividends, invest in growth. Third, it needs good management, people you trust, people who are smart and honest and who think like owners. Because if management's bad, even a great business can be destroyed. And fourth, it needs to sell something people actually need, not want, need, or at least strongly want in good times and bad times. Because if it's selling something discretionary, something people can easily cut back on, it'll struggle in a recession. Well, so those are high quality businesses. And if you own a portfolio of them, if you own five or 10 or 15 great businesses, you'll do fine through the crashes. Not because they won't go down, they will, but because they'll survive and come back and keep growing. That's the second asset, high quality businesses. Now, let me tell you about the third asset, bonds. And I know, bonds aren't sexy. They're not exciting. They don't get talked about much, but they're important, really important. See, bonds, especially high quality bonds like treasuries, they do something that stocks don't do. They provide stability. They go up when stocks go down. When there's a crash, when everyone's panicking, investors flee to safety. And safety, that means government bonds. So when stocks are falling, bonds usually go up, or at least they don't fall as much. That helps cushion your portfolio. It reduces your overall volatility. Now, I'm not a big bond investor personally. At Berkshire, we don't hold a lot of bonds because we've got other ways to provide stability. But for most people, for individual investors, bonds make sense, especially as you get older, especially as you get closer to retirement. Because when you're young, you can afford volatility. You've got time to recover from crashes. But when you're old, when you're living off your portfolio, you can't afford to lose 30 or 40 percent. You need stability, and bonds provide that. Now, not all bonds are created equal. Some bonds are safe, like U.S. Treasury bonds. The government's never going to default on those, at least not in dollars. But other bonds, corporate bonds, junk bonds, they're risky, really risky. During a crash, those bonds can lose just as much as stocks, because the companies behind them might go bankrupt. So if you're going to own bonds, stick with the high-quality ones. Treasuries, maybe some highly rated corporate bonds, but nothing too risky. Because the point of bonds, the reason you own them is safety, stability. If they're not providing that, then what's the point? Well, how much should you have in bonds? Again, it depends, but there's an old rule of thumb. Your age in bonds. If you're 30 years old, 30 percent bonds, 70 percent stocks. If you're 60, 60 percent bonds, 40 percent stocks. Now, I don't think you need to be that rigid, but it's a decent starting point. The key is, as you get older, you should shift more into bonds, more into stability, because you've got less time to recover from crashes. And that brings me to the fourth asset, the last one, real assets. Now, what do I mean by real assets? I mean things that have intrinsic value, physical value, things that can't go to zero. Real estate, commodities, land, infrastructure, things that will always be worth something because they're real, they exist in the physical world. Let me tell you about my favorite real asset, land. I own farmland, not a lot, but some, and I love it. Why? Because land is going to be there no matter what happens. The stock market can crash, the economy can go into recession, banks can fail, but the land, it's still there, still producing crops, still generating income. And farmland, it's actually a good investment during crashes because people need to eat always, no matter what's happening in the economy. So farms keep producing, keep generating cash, keep paying rent if you've leased them out. It's stable income, reliable income. Now, real estate can be a good real asset too, but you've got to be careful. Not all real estate is the same. If you own residential real estate in a hot market and the market crashes, you could lose a lot of money. We saw that in 2008. Housing prices fell by 30, 40, 50% in some areas. But if you own real estate in good locations, in places where people actually want to live, and if you're not overleveraged, not borrowing too much, then real estate can provide stability and income from rent. The other real asset I like, and this might surprise people, is productive assets. Real businesses, tangible businesses, not stocks, but actual operating businesses. At Berkshire, we own a lot of these. Railroads, utilities, manufacturing companies. And these businesses, they're real. They've got physical assets, equipment, buildings, infrastructure, things that have value. Even if the stock market crashes and they keep operating, keep serving customers, keep generating cash, that's what I love about them. They're grounded in reality. Now, most individual investors can't buy whole businesses, but you can buy parts of them through stocks. And if you choose the right ones, companies with real assets, real cash flow, you're getting exposure to real assets, not just pieces of paper, but actual productive capacity. That's what protects you during crashes. Well, so those are the four assets, cash, high-quality businesses, bonds, and real assets. Now, here's the important part. You need all four, not just one or two, all four, because they work together. They balance each other out. Cash gives you flexibility, the ability to act when opportunities arise. High-quality businesses give you growth, the ability to build wealth over time. Bonds give you stability, protection when stocks are falling. And real assets, they give you a foundation, a floor, something that can't go to zero. Together, these four assets create a balanced portfolio, one that can survive crashes and thrive afterwards. Let me tell you how this played out for me. In 2008, the financial crisis, going into that crash, I had all four of these assets at Berkshire. We had cash, lots of it, probably $40 billion or so. We had high-quality businesses, Coke, American Express, Wells Fargo, and dozens of operating businesses we owned outright. We had some bonds, not a lot, but some, and we had real assets, railroads, utilities, manufacturing plants. So when the crash happened, when the stock market fell 50%, yes, our portfolio went down, but not as much as the market because we had that balance, that diversification. And more importantly, we had cash so we could act. We could make investments when others were panicking. Goldman Sachs came to us. They needed capital desperately. So I invested $5 billion at really attractive terms. General Electric needed capital, so I invested $3 billion. And those investments, they made us enormous returns, billions and billions of dollars. But I could only make them because I had cash, because I'd maintained that balance. You see, that's how you survive crashes, not by getting lucky, not by timing the market, but by having the right assets, by being prepared, by having cash when opportunities arise, by owning businesses that survive, by having stability from bonds, by having a foundation in real assets. That's the fortress. That's what protects you. Well, let me talk about how to build this for yourself because most people, they're not managing hundreds of billions of dollars like I am. You might have $10,000 or 100,000 or a million. Doesn't matter. The principles are the same. Start with cash. Make sure you've got an emergency fund. Six months of living expenses at a minimum. That's non-negotiable. That's your safety net. Beyond that, keep some cash for investing. 10, 20, 30 percent. Depends on market conditions. When everything's expensive, keep more cash. Be patient. When things are cheap, keep less cash. Deploy it. Next, build a portfolio of high-quality businesses. Find five or 10 or 15 companies you understand. Companies with moats, with strong brands, with good management. Buy them at reasonable prices and then just hold them. Don't trade. Don't try to time the market. Just own good businesses and let time do the work. Then add some bonds. If you're young, maybe just 10 or 20 percent. If you're older, maybe 50 or 60 percent. Use your age as a guide but adjust based on your personal situation and stick with high-quality bonds. Treasuries mostly. Maybe some highly-rated corporate bonds. Nothing risky because the point is stability. And finally, get some exposure to real assets. This is the hardest one for most people because you can't just buy a farm if you've got $10,000. But you can buy stocks of companies with real assets. Utilities. Railroads. Real estate investment trusts. Or you can own real estate yourself. Maybe a rental property. Or your own home. The key is have something that's grounded in physical reality. Something that produces income. Something that will always have value. Well, let me tell you what happens when you do this. When you build a portfolio with these four assets, the crashes still hurt. They always do. You'll see your portfolio go down. But it won't go down as much as the market because you've got that balance. That protection. And more importantly, you won't panic. Because you'll know you've got cash. You'll know your businesses are high-quality. You'll know your bonds are providing stability. You'll know you've got a foundation. A floor. And that knowledge, that confidence, it's what lets you act when others are panicking. It's what lets you be greedy when others are fearful. As I like to say, you see, the secret to making money in crashes, it's not about being smarter than everyone else. It's not about predicting when they'll happen. It's about being prepared. Having the right assets. Having the right mindset. Because crashes, they're opportunities. Really. But only if you're prepared. Only if you've got these four assets. Hmm. Well, let me tell you about another crash. The COVID crash in 2020. That was interesting. Really interesting. Because it was so fast. The market fell 35 percent in about a month. Fastest crash I've ever seen. Just boom down. And you know what I did? Same thing I always do. I had cash. So I bought stocks. I invested in companies I liked that had gotten cheap. I had high quality businesses, so I didn't panic. Because I knew they'd survive. I had bonds for stability and real assets that kept operating. And six months later, the market was back to where it started. And a year later, it was higher than ever. But a lot of people, they panicked. They sold at the bottom. Why? Because they weren't prepared. They didn't have the right assets. They were fully invested in stocks. No cash. No bonds. No foundation. So when the crash happened, they had no choice but to watch. Or worse, to sell. And they lost money. Real money. Permanent money. That's the tragedy. That's what happens when you're not prepared. Hmm. You know, I've been doing this for 75 years now, and I've learned something important. It's not about being the smartest investor. It's not about making the most brilliant picks. It's about surviving. About staying in the game. Because if you can survive long enough, if you can make it through the crashes, you'll do fine. Better than fine. You'll get rich. But you can only survive if you've got the right assets. Cash. High quality businesses. Bonds. Real assets. Those four things. They're your armor. Your protection. And if you've got them, you can survive anything. Any crash. Any crisis. And come out the other side stronger. Well, let me talk about something else. The psychology of crashes. Because having the right assets, that's only half the battle. The other half is having the right mindset. See, crashes are terrifying. Really terrifying. When you see your portfolio down 30 or 40 percent. When you see headlines about banks failing and companies going bankrupt. Your instinct is to panic. To sell. To get out before it gets worse. That's human nature. It's how we're wired. But it's also the worst thing you can do. Because that's when you lock in your losses. The way you combat that instinct, the way you stay calm, is by having confidence in your assets. If you've got cash, you know you can survive. You can even act. If you've got high quality businesses, you know they'll recover. If you've got bonds, you know they're providing stability. And if you've got real assets, you know you've got a floor. A foundation. That knowledge. That confidence. It's what lets you think clearly. It's what lets you make good decisions. Instead of emotional decisions. You see, the biggest mistakes in investing, they're almost always emotional mistakes. Panic selling. Greed buying. Following the crowd. All emotional. All driven by fear or greed. Not by logic. Not by analysis. And the way you avoid emotional mistakes is by being prepared. By having the right assets. By having a plan. When the next crash comes, and it will come, you won't panic. Because you'll know you're prepared. You'll know you've got what you need to survive. And that confidence, it's priceless. Really priceless. Well, let me tell you one more thing about opportunity. See, crashes, they're not just threats. They're opportunities. The best opportunities in investing, they happen during crashes. When everyone's panicking. When great companies are selling for 50 cents on the dollar. When fear is everywhere. And rationality has left the building. That's when you make your money. That's when you get rich. But you can only take advantage of those opportunities if you're prepared. If you've got cash. If you've got the right mindset. If you're not panicking like everyone else. I remember in 2008, I wrote an op-ed for the New York Times. It was in October, right in the middle of the crisis. And I said, buy American. I am. People thought I was crazy. The world was falling apart. And I'm saying, buy stocks. But I wasn't crazy. I was prepared. I had cash. I had confidence in my businesses. I knew. I knew this was an opportunity. And I was right over the next few years. Those investments I made, they made me billions. But here's the thing. I could only make those investments because I'd been prepared. Because I'd maintained my four assets. Because I hadn't panicked. That's the power of being prepared. That's why these four assets matter so much. Well, let me start wrapping this up. I've been talking for a while now, and I hope you've heard what I'm really saying. These four assets, cash, high-quality businesses, bonds, and real assets, they're not just nice to have. They're essential. If you want to build real wealth, if you want to survive the crashes, and the crashes, they're coming. I can promise you that. I don't know when. Could be next year. Could be 10 years from now. But they're coming. They always do. And when they come, you need to be ready. You need to have these four assets in balance, working together. Because here's what I've learned. In 75 years of doing this, getting rich isn't about being brilliant. It's not about picking the next Amazon or Tesla. It's about surviving. About staying in the game. About not doing stupid things. And the way you survive is by being prepared. By having cash when opportunities arise. By owning businesses that endure. By having stability from bonds. By having a foundation in real assets. That's the fortress. That's the protection. And if you build it, if you maintain it, you'll survive every crash. And not just survive, thrive. Because while everyone else is panicking, while everyone else is losing money, you'll be calm. You'll be prepared. You'll be ready to act. You see, I'm near the end of my life now. And when I look back, when I think about all the money I've made, all the wealth I've built, it didn't come from being the smartest person. It didn't come from some secret strategy or brilliant insight. It came from being prepared. From having these four assets. From surviving every crash. And from having the courage to act when others were too scared to act. That's the whole game. That's, that's everything. So here's my advice to you. As clearly as I can say it. Build your fortress. Get these four assets in place. Keep cash. Always. 10, 20, 30 percent. Never be fully invested. Own high quality businesses. Companies with moats. With strong brands. With good management. Hold some bonds for stability. For protection when stocks fall. And get exposure to real assets. Land, real estate, infrastructure. Things that will always have value. Do that and you'll be prepared. And when the next crash comes, when everyone else is panicking, you'll be calm. You'll be ready. And you'll make a fortune. Just like I have. Every single crash. You know, people ask me what I'm most proud of. And it's not the money. It's not being one of the, one of the richest people in the world. It's that I survived for 75 years. Through every crash. Every crisis. Every panic. I stayed in the game. I didn't blow up. I didn't make stupid mistakes. And that's because, because I had these four assets. They protected me. They gave me confidence. They let me act when others couldn't. And they'll do the same for you if you build them. If you maintain them. If you're patient enough and disciplined enough. Well, I suppose that's all I've got to say. Four assets. Cash. High quality businesses. Bonds. Real assets. They made me billions during every crash. And they'll protect you too if you let them. So build your fortress. Be prepared. And when the crashes come, and they will come, you'll be ready. You'll survive. You'll thrive. And you'll look back one day. Years from now. Decades from now. And you'll be glad you did. I promise you that. I really do.