Warren Buffett Just Gave an Ominous Warning to the Market. Here's What Investors Should Do.

The market was stunned by Warren Buffett's announcement last Saturday at Berkshire Hathaway's (NYSE: BRK.A)(NYSE: BRK.B) annual meeting that he would be stepping down by the end of the year. Although he has hinted that this was on the way, investors weren't quite prepared to hear the news that it's actually happening.

But although that was the talk of the markets, there were plenty of other interesting updates at the meeting, including an ominous warning from Buffett to investors. Let's talk about what Buffett said and how to prepare.

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Hair-curling moments

At the meeting, Buffett talked about current market turbulence, but he doesn't quite view it as a momentous time. He said it was "really nothing," and "not a huge move."

He's placing that in the context of his own time in the markets, and since he's 94 and bought his first stock when he was 11, that's a long time. He said Berkshire Hathaway had lost 50% of its value three separate times, and those were momentous occasions. This is not.

Then he gave his warning: "You will see a period in the next 20 years," he said, "that will be a 'hair curler' compared to anything you've seen before."

Image source: The Motley Fool.

He tempered that a bit by adding:

That just happens periodically. 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.

This is part and parcel of investing. The market goes up, the market goes down, it goes back higher, rinse, repeat. But investors shouldn't fool themselves into thinking that what's happening today is a tragedy or even a monster drop.

I can tell you that historically, over and over again, the market has always bounced back bigger and better. True as that might be, every moment is a new time in history that's different than before and could yield different results. And Buffett is telling investors to expect the worst, because it's going to happen, at some point.

The keys to success

Buffett didn't end on a sour note, though. He believes in the ongoing story of the U.S. economy and made several humorous points about how lucky he feels to be an American. "If I were being born today, I would just keep negotiating in the womb until they said, 'You can be in the United States,'" he said.

To participate in the continued opportunity here and not let it slip by through panic and fear, here's how to prepare using tactics Buffett uses:

• Change your mindset. When discussing general volatility like the market has been experiencing over the past few weeks, Buffett advised, "If it makes a difference to you whether your stocks are down 15% or not, you need to get a somewhat different investment philosophy because the world is not going to adapt to you, you're going to have to adapt to the world."
• Diversify. If you're young, you might be focused on growth stocks, and if you're nearing retirement, you might be more invested in passive income stocks. Either way, make sure you have a broad selection of different kinds of stocks that include safe stocks, no matter what stage you're at in life. Take a cue from Buffett, who expanded Berkshire Hathaway into a huge company that owns 189 businesses plus a $275 billion equity portfolio, and who touted his diversification at the meeting.
• Play the long game. The market is going to be a roller coaster, but you won't know when the dips and climbs will change. Don't get too fussed about short-term negativity, and certainly don't panic-sell. "Things get extraordinarily attractive very occasionally," Buffett said, but "the long-term trend is up."
• Keep a cushion. Investors can sometimes fall into trouble when the market is down and they need their money. Having some kind of cushion or emergency fund should keep you from fear-induced selling at a loss.

These four (fairly) simple steps can help you manage through market upheaval and stay in the game long enough to build wealth over time.

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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.