The Motley Fool

How to Invest Like Warren Buffett in a Market Crash

Image credit: Photo by CIRA/.CA.

Last week, investors found themselves in the thick of the worst trading week since the 2008 financial crisis. The global COVID-19 coronavirus outbreak has stirred panic in the investing world, and those impacts do pose a significant threat to worldwide growth.

When investors are at a loss during periods of extreme market turbulence, it’s often best to look at how the best in the business are reacting to these fluctuations.

Recently, I’d discussed some important tips that investing legend Warren Buffett dropped in a long interview with CNBC.

Today I want to explore how a regular investor like me or you can approach these market fluctuations like Mr. Buffett himself.

Keep a cool head

“Don’t panic.” That was one of the key Buffett tips I’d gone over last week. We don’t even need to go all the way back to the financial crisis to see why selling in a correction is a bad idea.

Look at the sharp market dip that occurred in late 2018. While market corrections understandably inspire fear, investors need to exercise patience and avoid selling low.

Hunt for value

Warren Buffett is perhaps the most famous proponent of value investing in the industry, which involves targeting high-quality companies with stock below fair value.

Just this past week, Buffett acquired nearly one million shares of Delta Airlines, according to Bloomberg News. Airline stocks have been battered over the course of this crisis, with many experts projecting that the travel industry will be the hardest hit.

Air Canada (TSX:AC)(TSX:AC.B) has been one of the top stars on the TSX over this past decade. The company has consistently outperformed analyst expectations amid an industry expected to post more solid growth in the 2020s. However, shares of Air Canada have plunged 24.6% over the past month as of close on March 4.

This company appears to fit perfectly within the value investing framework. It is forecast to post strong earnings growth, its balance sheet has improved dramatically into the start of this decade, and air travel is expected to double over the next two decades.

Air Canada stock possessed a very favourable price-to-earnings ratio of 6.4 at the time of this writing. Shares last had an RSI of 23, putting Air Canada at technically oversold levels.

Maintain a long-term outlook

Buffett conceded that the coronavirus outbreak was “scary stuff” in his interview with CNBC. He said that many of Berkshire Hathaway’s key businesses, including Coca-Cola and Geico, could be negatively impacted by the outbreak.

However, Buffett remains very optimistic on the long-term health of the United States economy. “Business is down, but it’s down from a very good level,” he said. Buffett said that investors should stay long and avoid getting caught up in “today’s headlines.”

Restaurant Brands International (TSX:QSR)(NYSE:QSR) is one Buffett-owned Canadian stock worth your attention if you take his advice and adopt a long-term outlook.

Its shares have dropped 6.2% week-over-week as of close on March 4. The stock is down 4% year over year.

Investors should hope to see RBI improve its debt position in the quarters to come, but it continues to forecast solid earnings growth. In 2019, RBI delivered system-wide sales growth of 8%.

Popeyes was the big story, posting massive system-wide sales growth of 42% in Q4, while Burger King remained a model of consistency. While Tim Hortons disappointed again in 2019, RBI is staking aggressive steps to improve its output.

Shares of RBI are trading below their fair value relative to industry peers. RBI stock last had an RSI of 28, putting it in oversold territory. The stock offers a quarterly dividend of $0.50 per share, which represents a 3.6% yield.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

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 Ambrose O'Callaghan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Delta Air Lines. The Motley Fool recommends RESTAURANT BRANDS INTERNATIONAL INC.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.