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.

| More on:
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).

More on Dividend Stocks

Pixelated acronym REIT made from cubes, mosaic pattern
Dividend Stocks

The Top Canadian REITs to Buy in June 2023

Canadian investors looking for passive income from real estate investing can consider these top Canadian REITs for monthly income.

Read more »

Retirement plan
Dividend Stocks

Planning for Retirement? Here Are the Best Canadian Dividend Stocks to Buy

Buying two of the best Canadian dividend stocks now for the long term can help you retire without financial worries.

Read more »

investment research
Dividend Stocks

A Dividend Giant I’d Buy Over TD Bank Stock

Energy and financials are the TSX’s sector heavyweights, but I’d choose a dividend giant in the former over a big…

Read more »

edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.
Dividend Stocks

2 Dividend Stocks Worth a Permanent Spot in My TFSA

Restaurant Brands International (TSX:QSR) and Berkshire Hathaway (NYSE:BRK.B) are two of my top TFSA holdings that I intend to hold…

Read more »

Increasing yield
Dividend Stocks

3 Canadian Dividend Stocks Offering High Yields and Reliable Income

These valuable dividend stocks offer solid deals right now, with ultra-high yields that will certainly last well beyond this downturn.

Read more »

potted green plant grows up in arrow shape
Dividend Stocks

Best of Both Worlds: 3 Growth Stocks That Also Pay Dividends

Dividend stocks are great until a downturn ends. But luckily, these three dividend stocks also offer a massive amount of…

Read more »

Payday ringed on a calendar
Dividend Stocks

Monthly Passive Income: 2 Top TSX Dividend Stocks to Buy in June 2023

Here are two of the best TSX monthly dividend stocks you can buy in June 2023.

Read more »

Female hand holding piggy bank. Save money and financial investment
Dividend Stocks

RRSP Wealth: 2 Great Canadian Dividend Stocks to Buy in June 2023

Top TSX dividend stocks are now on sale.

Read more »