Warren Buffett Gives Genius Advice on Stock Market Crashes

Warren Buffett weathered several market crashes, so his advice on the subject should matter to or guide investors. His purchase of the Barrick Gold stock could also start a mad rush for gold stocks.

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close-up photo of investor Warren Buffett

Image source: The Motley Fool

When Warren Buffett turned 90 on August 30, 2020, his net worth was US$82.6 billion. The chairman of Berkshire Hathaway, also known as the Oracle of Omaha, is one of the most successful investors of all time, if not the GOAT of investing. Investors want to have a slice of his brain to be as successful as the man.

The famed American billionaire has been through several market crashes, such as the 1987 Black Monday, 2000 dot-com bubble, and the 2008 financial crisis. The one-two punch (COVID-19 and oil price war) in 2020 made him gun-shy at least for two quarters.

In the fourth quarter of 2020, analysts and investment gurus keep warning investors of a market crash. It’s ear-splitting already, yet no can say when it will happen. If you were to prepare, Warren Buffett also has genius advice on stock market crashes. The nonagenarian knows how to deal with them.

Plenty of robins

The S&P/TSX Composite Index has risen from its COVID-19 low on March 23, 2020, but continues to be in the negative territory this October (-8.01% year to date). Six of the 11 primary sectors are in the red. Information technology (+28.4%) is the best performer, while energy (-55.15%) is the deadbeat of all.

The second wave of COVID-19 and the deteriorating economy are the reasons why pessimism is trending these days. Both are darkening the mood and heightening anxiety.

In 2008, Mr. Buffett wrote, “If you wait for the robins, spring will be over.” He thinks that by the time the economy will look healthy again, stock prices will no longer be cheap. The value investor also disregards the noise because there would be plenty of robins around in a market crash.

Warren Buffett added a piece of second advice: “Bad news is an investor’s best friend.” This means you should be investing in the stock market while the pandemic is still here. However, he would instead focus on opportunity over risk. Historically, markets recover a great deal after downturns.

The gold rush

One of Buffett’s best buys in Q2 2020 is Barrick Gold (TSX:ABX)(NYSE:GOLD). Berkshire Hathaway bought a stake in the Canadian miner and world’s second-largest gold-producing company. It has a market capitalization of $63.87 billion.

Gold investors were thrilled with Buffett’s entry into mining stocks. He saw Barrick as more of a safety net than a robin. Had you invested in the gold stock on March 31, 2020, your money would have appreciated by 40% on November 2, 2020. Barrick’s year-to-date gain is 50%, plus it has a dividend yield of 1.18%.

Berkshire Hathaway is now the Toronto-based company’s 11th-largest shareholder. It appears that Buffett is positioning for a huge inflationary monetary stimulus policy. Gold would be attractive in such a case.

With Buffett as the latest gold bug, it could prompt an investing rush by big-value and regular investors. Also, gold prices are rising due to the uncertainty around the outcome of the U.S. elections. The precious metal is again the haven of investors.

Find opportunities

Hearing Warren Buffett’s words of wisdom can change an investor’s view of the market. If you have investments in great companies, try not to worry. Instead, find opportunities to add to your existing portfolio.

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 Christopher Liew 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 December 2020 $210 calls on Berkshire Hathaway (B shares).

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