North American markets have been on a tear since the early November election of United States president-elect Joe Biden. Investors have also been enthused by news that vaccines will be distributed in the weeks ahead. This is good news for a reeling global economy. However, investors should exercise caution in this environment. Today, I want to look at Warren Buffett’s favourite indicator and explore how the investing legend is behaving right now. Let’s dive in.
Warren Buffett: His favourite indicator is flashing red
Back in the late summer, I’d discussed how investors could emulate Warren Buffett ahead of a potential market crash. Even then, one of Buffett’s favourite market indicators was flashing warning signals. The Buffett Indicator takes the combined market capitalizations of publicly traded stocks worldwide and divides it by the given country’s gross domestic product (GDP). Buffett is a famed advocate of value investing. When the market is overheated, investors like Buffett look to steer clear.
The Buffett Indicator climbed above 180% in the middle of the previous week. This is not far from its peak of 187%, which it hit in the second quarter of 2020. Warren Buffett has consistently heaped praise on this gauge, calling it a “strong warning signal” of future market turbulence. Investors should prepare for volatility in the near term.
What is the Oracle of Omaha buying and selling?
Last week, I’d discussed some of Warren Buffett’s recent moves. Namely, Berkshire Hathaway’s decision to drop a significant stake in Barrick Gold. The move coincides with the loss of momentum for the yellow metal in the late summer. Meanwhile, digital currencies like Bitcoin have managed to challenge their previous all-time highs. Gold has still had a stellar year, but the rewards for investors may have been capped in 2020.
While Warren Buffett had shed a stake in gold, he is moving to healthcare. This is an interesting maneuver considering Buffett’s historical skepticism of Big Pharma as an investment. However, like gold’s stunning success, the earnings potential of the vaccines is impossible to ignore. Like technology, the Canadian market space is not as rich as its southern neighbour when it comes to healthcare investing. Fortunately, there are still some strong options.
Should you follow Warren Buffett’s lead?
Canadians will have to look south to scoop up a vaccine-focused stock like Pfizer or Moderna. Meanwhile, those looking solely at the TSX may want to consider Northwest Healthcare REIT (TSX:NWH.UN). This REIT provides investors with access to a portfolio of high-quality healthcare real estate around the world. Its shares have climbed 10% in 2020 as of mid-afternoon trading on December 7.
In Q3 2020, Northwest saw net operating income increase 3.4% year over year to $72.2 million. Total fee-bearing assets under management rose to $8.5 billion. The defensive nature of this REIT has made it a perfect hold during the COVID-19 pandemic. It still offers a monthly dividend of $0.0667 per share. That represents a tasty 6.4% yield. Investors who want to emulate Warren Buffett and gobble up stellar income should target this healthcare-focused REIT.
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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 has no position in any of the stocks mentioned. The Motley Fool recommends NORTHWEST HEALTHCARE PPTYS REIT UNITS.