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Follow Warren Buffett and Keep Investing in a Turbulent Market

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Warren Buffett is a global icon. A mastermind in the investing world, the Oracle of Omaha has generated massive wealth over the last few decades. He is one of the few investors to have successfully outperformed the broader equity markets. When in doubt, you can look to Buffett’s investing strategies.

This year, the COVID-19 pandemic has decimated stock markets all over the world. Lower consumer spending and business shutdowns have led to a spike in unemployment rates. The global economies might plunge into a recession, as the dreaded virus takes a toll on most sectors.

In these uncertain times, investors are rightly worried. The stock indexes wiped off billions in investor wealth since they peaked in mid-February this year. However, as we know it is impossible to time the equity markets. For example, the iShares S&P/TSX 60 Index ETF (TSX:XIU) fell 36% in less than a month. Since March 23, it has risen 34% and is currently trading 14% below record highs.

Investing is a long-term play, and Warren Buffett has time and again stated this importance. In one shareholder letter, Buffett famously claimed, “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”

Warren Buffett bets on the economy

For investors who do not have the time and expertise to pick standalone stocks, passive investing is a good bet. You can invest in ETFs such as XIU that have exposure to the large-cap Canadian companies.

XIU’s top holdings include Shopify, Royal Bank of Canada, Toronto-Dominion Bank, Enbridge, and Canadian National Railway; they account for a cumulative 30.6% of the ETF.

For Canadians who want diversification, investing in the Vanguard S&P 500 Index ETF is ideal. This fund replicates the S&P 500, which is one of the most popular indexes in the world. It gives investors an opportunity to have top-quality stocks such as Apple, Amazon, Microsoft, and Google in their portfolios.

If you are betting on index funds, it means you are bullish on the economy. The Canadian economy is fundamentally strong and has survived recessions over the years. It has always managed to bounce back after a temporary crisis and indexes continue to touch record highs.

Warren Buffett stated, in the last century, the United States experienced two world wars, the Great Depression, a flu pandemic, and multiple recessions. It is still the largest economy in the world.

So, for investors with a buy-and-hold strategy, every major dip in the stock market is a buying opportunity.

Berkshire Hathaway also has a huge pile of cash

Warren Buffett-owned Berkshire Hathaway ended the first quarter with $137 billion in cash. This suggests that company management thinks stocks are still overvalued. In the last month, Berkshire dumped airline stocks and exited the capital-intensive sector.

The investment behemoth also reduced stakes in Goldman Sachs and JP Morgan. However, Buffett remains invested in most other stocks and is betting on a market recovery. In case the market corrects significantly, Warren Buffett can leverage Berkshire’s large cash position to buy quality stocks at a cheaper valuation.

If you are an avid investor, you can re-balance your portfolio. You can also keep some capital aside in case you are bearish on the market in the short term. But as stated before, timing the market is not advisable, and a 15% market decline is still an attractive opportunity for investors.

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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.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. David Gardner owns shares of Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and Canadian National Railway. Tom Gardner owns shares of Alphabet (A shares), Alphabet (C shares), and Shopify. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Berkshire Hathaway (B shares), Canadian National Railway, Enbridge, Shopify, and Shopify. The Motley Fool recommends Canadian National Railway 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), short June 2020 $205 calls on Berkshire Hathaway (B shares), short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.

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