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Warren Buffett Market Predictions 2018

By Tuesday, the market correction of Black Monday 2018 (February 5, 2018), seemed like a mere break. Investors indulged in a little profit-taking to pay the Christmas bills or the Caribbean getaway from the, especially cold winter. Yet, on Thursday, rather than continue its recovery, the Dow Jones Industrial Average (DJIA) took another steady dive, seeking a new low for the year to date. Once is a fluke. But two crashes in the same week?

That starts to look a lot like 1929. There is real fear in the markets that the very thing that drove the Dow and the Nasdaq to lofty records at the start of 2018 could be the cause of their ruin in February. In fact, what we are seeing on the markets is one of Warren Buffett’s predictions for 2018.

Warren Buffett is no contrarian. He does have an optimistic outlook for the U.S. economy in general over the next 100 years. Yet, the world’s most famous investor and CEO of Berkshire Hathaway Inc. (NYSE: BRK-A) has at least 30% of his holdings in cash. How could that be?

Clearly, Buffett proffers predictions that he himself believes. He literally puts his money where his mouth is. Buffett says he hates having to hold so much cash. But he hates expensive stocks even more. (Source: “The best prediction for 2018: Beware of conventional wisdom about the stock market and an election 10 months away,” MarketWatch, January 2, 2018.)

You don’t need to verify the Warren Buffett predictions on the economy. Conveniently, if sadly, they are materializing before our very eyes. Buffett and other masters of finance—like Ray Dalio, for example—have been sending the warning salvos for months. The message may use different terms and examples, but when stripped down to its essentials, the idea is clear and simple. The market is too expensive. Stocks have an average 27 times price-to-earnings ratio. That means whatever earnings they may accrue in the coming year, their valuations are already reflecting them.

In the short term, this makes Wall Street, in particular, vulnerable to all kinds of shocks, from the financial to the economic and the political. In the longer term, it places the entire world economy in peril.

Warren Buffett’s Advice for the Stock Market

You are still in time to take Warren Buffett’s advice for the stock market. Buffett has set the example. The fact that he has a much larger cash position than he would like—by his own admission, he doesn’t like cash—is the advice; he sees a strong cash position as the best hedge against the inevitable shocks to the economic system in 2018. They’re already here.