Back in October, we started seeing signs that Warren Buffett is preparing for a market crash. According to reports, most of Berkshire Hathaway’s portfolio consisted of cash. Warren Buffett usually frees up a substantial amount of money to make significant acquisitions, but the scale of Berkshire’s free cash portfolio indicates that he is expecting a dip.
With the Oracle of Omaha making preparations, I feel that it might be a good time you started preparing as well. Let’s try and understand two things that Warren Buffett does during a market crash. Where the majority of investors duck and run, I would suggest you follow the approach of the most successful investor of our time.
Patience is a virtue. The statement is as accurate as ever, especially considering the holding period for Warren Buffett’s investments. Being patient does not seem like an exciting prospect as an investor, but it could help you capitalize on declining stock prices in a bear market.
Buying stocks during volatile periods for any company or industry can incur huge losses on paper — in the short run. If you have nothing but a short-term view on your investments, it could pose a significant problem for you.
Some individuals might go as far as considering themselves failed investors due to short-term losses. Many might even consider selling their investments at discounted prices because they cannot bear further losses.
Warren Buffett, in stark contrast, would never consider holding onto your investments during bear markets a wrong move. He might feel it would have been worth your while to wait a little longer and purchase more stocks at a lower price. Buying shares at highly discounted prices means more significant potential for growth once the markets recover.
Warren Buffett’s seemingly inhuman patience when it comes to holding periods of his investments made him the successful investor he is. On several occasions, especially during a financial crisis, Buffett has been early in buying up shares of stocks that are drastically devalued as a result of the economic meltdown.
If he followed general consensus, he would have likely sold significant positions in companies after short holding periods. Since he takes a long-term approach, falling share prices become irrelevant because the markets always recover, and he remains optimistic about it.
One of Warren Buffett’s investments is Suncor Energy. Buffett bought up more than $500 million in Suncor stock in February 2019 — nearly 1% of the entire company. The company is an energy powerhouse. Over the past month, the stock has fallen by 7.24% at writing.
In its Q4 and full-year 2019 results, the company reported $1.66 per share compared to $1.26 per share in fiscal 2018.
Patience and a long-term approach are two things Warren Buffett does during a market crash. Suncor presents itself as one of the investments he considers in the event of a meltdown to take advantage of the discounted share prices.
I think following his footsteps and considering a stock like Suncor can prove to be beneficial to you in the event of a market crash.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short March 2020 $225 calls on Berkshire Hathaway (B shares).