A market crash is coming, and practically everyone is preparing for it within the financial world. Investing moguls like Warren Buffett have been selling and buying all over the place in the last few months, but not in an exciting way.
While others are buying up stocks hoping to make a killing during this rebound, there are those like Buffett who are taking their profits and entering preparation mode.
What’s causing the crash?
In short? Vaccine euphoria. Of course, don’t get me wrong: A COVID-19 vaccine is incredible news. There are multiple options already being distributed around the world. The vaccine is finally getting into the hands, or arms I should say, of patients who need it most.
The stock market is acting like everyone is about to receive this vaccine, which is simply not the case. It could be months if not a year or more before everyone receives the COVID-19 vaccine here and around the world.
Meanwhile, it will be saved for those that need it most, like the elderly, essential care workers, long-term care workers, those with immune disorders, and others — but not your average Joe quite yet.
This means we’ll likely continue seeing cases rise in Canada and elsewhere. With earnings set to come out in January showing a slight downturn, and another after that in March when we’ll be fully entering a COVID-19 comeback, another crash is likely.
What’s Warren Buffett doing?
Selling and buy in preparation. The billionaire investor cut his stake in multiple companies in November, adding shares in companies he would have never considered even a year ago. The investor’s Berkshire Hathaway holdings reduced stakes in telecommunications companies, large tech companies, banks and financial institutions.
These are companies that have continued to see gains during the rebound, as investors look for financial advice, loans to get back on their feet, new broadband services working from home, and of course the tech industry in general that’s soared from the work-from-home economy.
But with most of that revenue having been earned and another crash on the way, Warren Buffett looks to be thinking there’s going to be a major sell off. I’d agree, as banks, for example, have jumped back to pre-crash norms in Canada, and companies like Lightspeed POS Inc. have reached all-time highs in the last few months.
These are likely the first to be sold off during the next crash. So if you have huge profits from either banks or tech stocks and need the cash soon, it might be time to take your profits.
What’s he buying?
As I mentioned, Warren Buffett is considering companies never in his vision, such as gold stocks. Gold merely looks pretty and doesn’t serve a useful purpose, Buffett has argued. But lately his tune changed, with Berkshire buying up a stake in Barrick Gold. Granted, last month Berkshire then sold off 42% of that stake, but just owning the stock is saying something: gold is going up, the dollar is going down.
While there are other more common investments Buffett made, there are two areas he is now looking at: cloud-based services, and healthcare. Berkshire now owns stakes in cloud-managing services and healthcare stocks that involve getting through COVID-19. If you’re looking for shares to invest in, definitely start digging into these areas.
While it’s great to look at what Warren Buffett is doing, Berkshire has to create returns for its mega investors. However, if you’re holding onto bank stocks thinking it’s time to panic: don’t.
If you don’t need that cash right away, it might be better just to step back and wait until there’s a full-on rebound. Then look for opportunities to make extra cash with small stakes during the next market crash in areas that investors like Buffett have turned their eye to.
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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 Amy Legate-Wolfe owns shares of Lightspeed POS Inc. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool owns shares of Lightspeed POS Inc 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).