This is what Warren Buffett has to say about passive income — and I’m listening!

Warren Buffett once warned, “If you don’t find a way to make money while you sleep, you will work until you die”. One way to do that is by building passive income streams from assets like shares, rather than relying only on a monthly paycheque.

But investing can be daunting, particularly in today’s market. The FTSE 100 recently dropped more than 10% from its high, prompted by the Middle East conflict, higher oil prices, and the risk of stickier inflation and interest rates.

The more domestically focused FTSE 250 has been hit even harder as investors worry about the UK economy. It’s exactly the kind of turbulance that tempts people to sell everything and hide in cash.

The Buffett playbook

Buffett’s playbook is very different. He tells investors to “be fearful when others are greedy and greedy when others are fearful“.

In other words, stay calm, ignore the noise, and use the dip to buy quality companies at a discount. He often noted how bad news can be an investor’s friend, making quality stocks available at bargain prices.

Right now, some UK shares look priced for disaster, despite decent fundamentals. 

High earnings, low prices

The private equity giant 3i Group (LSE: III) has grown roughly 469% over the past decade, yet the shares are down close to 30% since last April. Analysts put its forward price‑to‑earnings (P/E) ratio for 2026 at around four times — extremely cheap for a long‑term growth winner.

Crucially, recent numbers don’t point to a business in trouble. In the year to March 2025, it reported a 25% total return on shareholders’ funds and strong growth in net asset value per share. Its main holding, European discount chain Action, continues to grow sales and profits at double‑digit rates.

In fact, 98% of its holdings grew earnings in the 12 months to mid‑2025. So this price drop seems to be more about sentiment and higher rates than any obvious operational issues.

A tough market

Vistry, the UK housebuilder, is another example. One valuation service puts its forward P/E at about 5.3, implying investors are very cautious on future profits. This is despite a solid order book and plans for revenue and volume growth. 

In the same vein, easyJet trades on a forecast P/E of roughly five. But revenue and earnings are expected to recover if oil prices drop and travel demand rebounds.

Both are exposed to macroeconomic risks like higher energy costs and a weaker consumer, but those low multiples suggest a lot of bad news is already priced in.

Of course, nothing is guaranteed. 3i Group is heavily reliant on Action and a concentrated portfolio, so a serious downturn in European consumer spending or a sharp fall in private‑equity valuations could hurt. 

And if rates stay higher for longer or geopolitics worsen, all three shares could remain volatile for some time.

No risk, no reward

Buffett likes passive income because it buys freedom: dividends, interest, and long‑term growth can keep flowing whether you’re at your desk or fast asleep.

Market dips like the current correction can be a rare opportunitiy to build an income stream with strong businesses at low prices.

But it also requires risk management — spreading money across sectors, keeping some defensive shares and cash, and accepting that volatility is normal rather than something to fear.

The post This is what Warren Buffett has to say about passive income — and I’m listening! appeared first on The Motley Fool UK.

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Mark Hartley has positions in 3i Group Plc, Vistry Group Plc, and easyJet Plc. The Motley Fool UK has recommended Vistry Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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