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Warren Buffett: How to Win the Next Market Crash

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The S&P/TSX Composite Index fell nine points on August 25. Investors have watched the behaviour of legendary investor Warren Buffett closely in 2020. This should come as no surprise. Buffett came out on top after the 2007-2008 financial crisis. Because of this, investors are looking for some guidance in the COVID-19 crisis. Today, I want to discuss how investors can emulate Warren Buffett to guard against a potential market crash.

The top Warren Buffett Indicator is flashing a market crash warning

Earlier this month, I’d discussed the behaviour of Warren Buffett’s favourite market indicator. The so-called Buffett Indicator takes the combined market capitalizations of publicly traded stocks worldwide and divides it by global gross domestic product (GDP). Buffett has long advocated for a value investing strategy. When this indicator reads more than 100%, as it does not, that suggests that the market is overvalued relative to the global economy.

Value investors like Buffett are not the only ones who are sounding the alarms about this market. Economies around the world are struggling to bounce back from the COVID-19 calamity. The diversion between an expanding market and a stumbling economy has become even more pronounced.

What is the legendary investor doing right now?

Warren Buffett has cultivated a reputation as a gold skeptic. He has often advocated against investing in precious metals, preferring to focus on top blue chips on the S&P 500. Buffett shocked the investing world when his company Berkshire Hathaway added a position worth over $500 million in Barrick Gold. This is one of the largest gold producers in the world. Its stock has increased 57% in 2020 as of close on August 25.

In the beginning of August, reports showed that Warren Buffett had poured over $2 billion into Bank of America stock over a two-week period. Canadian bank stocks are worth watching, as third-quarter earnings season is now underway. Toronto-Dominion Bank is the second-largest financial institution in Canada. Its stock has dropped 8.1% in 2020 so far. Shares last possessed a favourable price-to-earnings (P/B) value of 11 and a price-to-book (P/B) value of 1.3.

This stock is a solid pick to emulate Warren Buffett

Earlier this summer, Warren Buffett made a big splash with the $9.7 billion acquisition of Dominion Energy. This energy giant has made a concerted effort to transition to green energy alternatives in recent years. Investors worried about a market pullback can work towards stability with stocks like Algonquin Power & Utilities (TSX:AQN)(NYSE:AQN).

Algonquin owns and operates a portfolio of regulated and non-regulated power-generation and utility assets in Canada and the United States. Its stock has increased 11% year over year at the time of this writing. In the year-to-date period, adjusted net earnings have climbed 1% to $150.7 million. Shares of Algonquin last had a P/E ratio of 18 and a P/B value of 2.1. This puts the stock in favourable value territory.

The stock last paid out a quarterly dividend of $0.1551 per share. This represents a solid 4.5% yield. Value investors can emulate Warren Buffett by adding this top dividend stock in late August.

Market crash or not, I still love these stocks...

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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 Ambrose O'Callaghan owns shares of TORONTO-DOMINION BANK. The Motley Fool recommends Dominion Energy, Inc.

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