One of the best things we can learn from Warren Buffett about investments is the pride of ownership. Buffett is a staunch believer in buying “a business,” not just shares of a business that perform based on market sentiment and a plethora of other factors. It’s more of a psychological thing than a tangible one, because whether you buy a business that you feel proud of owning or simply buy because the stock’s valuation and movement ticked your boxes, the output would essentially be the same.
But the difference in attitude is more about how you vet a business and whether you keep or sell it. If you know, understand, and believe in a business, you will find it easier to hold in your portfolio long term. Even if market crashes bring it down, you won’t be quick to sell it because you know it will pick up again. But if you simply buy a company because it offered good value at a time, your decisions around it would mostly stem from market dynamics.
But learning from Buffett and copying his every move are two completely different things. Whatever your sentiment and pride of ownership regarding a stock are, whether you exit your position or beef up your stake might not impact the stock’s movement at all. But when Buffett does it, his moves have enough impact to sway market sentiment around the stock. So, instead of following his moves strictly, let’s see what we can learn from them.
Sell one stock
Warren Buffett sold Restaurants Brands International (TSX:QSR)(NYSE:QSR). Despite his love for fast food and the fact that RBI contains two very nationally integrated brands (i.e., Tim Hortons in Canada and Burger King in the U.S., and Popeyes — another brand that’s gaining popularity). RBI’s stock indeed fell well over 54% during the crash, but it also showed decent enough recovery, especially considering the industry’s situation.
It’s a decent dividend stock, and if you consider how rapidly it grew after the market crash, its growth potential is not too shabby either. So, if you are thinking about selling RBI just because Warren Buffett did it, think again. The fast-food business can still survive more waves of the pandemic, relying primarily on takeout and deliveries, even if the pandemic again instigates lockdowns.
The business won’t exactly thrive, but RBI will keep the lights on (hopefully). And when the economy recovers, fast food isn’t the kind of discretionary spending people would stay clear of for a long time.
Buy one stock
Warren Buffett also bought gold in the form of Barrick Gold’s (TSX:ABX)(NYSE:GOLD) shares. If you want to copy Buffett’s moves exactly, you can look into this golden stock. But buying it right now might not be very financially savvy.
The stock peaked in September. But as the economy recovered and the stock market started moving upwards again, the gold prices stopped spiking. Even if a second wave comes, the stock might not grow as much as it did during the last crash.
While converting a small amount of your portfolio into gold or gold stocks offers you a decent hedge against market downturns, it’s also a stagnant move. The gold doesn’t perform very well in a thriving economy, and the best time to buy gold stocks is when the economy is going down. You can purchase gold stocks as they start growing and sell them when the economy stabilizes. The short-term gains might be decent enough to offset any tax implications.
Speaking of Warren Buffett...
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Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends RESTAURANT BRANDS INTERNATIONAL INC.