No one can see into the future, but by looking at the performance of billionaire investor Warren Buffett recently, you’d think he could. The Oracle of Omaha has been making some huge moves lately, especially in the last month.
The investor sold stakes in telecommunications companies, tech giants, banks and financial services. Meanwhile, his fund Berkshire Hathaway bought stakes in several areas that haven’t been all that popular for Buffett in the past.
What this means is one thing: preparation for another downturn. If you were to look at the stock market, you’d think I was crazy. But let me get into why a market crash is coming, and Warren Buffett is getting prepared.
“Be greedy when others are fearful, and fearful when others are greedy.” That’s the quote by Warren Buffett so well known by many, and right now investors should be fearful.
The stock market is ripe with greedy investors looking to make a killing, and quick. Yet this has primed the markets for a huge downturn, and it’s why Warren Buffett is fearful.
Sure, businesses are back, but COVID-19 is at all-time highs in this country and others. This means there is likely to be an inevitable lockdown if not within provinces, even throughout the country.
In the United States, President-Elect Joe Biden may even announce a country-wide lockdown, if recommended by the Center for Disease Control (CDC). This could cause a huge panic in the markets by next earnings season in mid-January.
How to respond
Invest in stocks that can ride out the pandemic. Even if the market crash is as big as the last one, or bigger, we’ve learned since then. We know what industries will continue to make revenue even while the pandemic is happening.
We’ve learned how to keep our money safe. So it should be easier to pick strong defensive stocks.
A solid option would be to invest in cloud-based technology. As the work-from-home economy continues to boom, especially if more people are working from home in the next few months, there will be more boosts to recurring revenue from cloud-based companies.
One such company would be Open Text Corp. (TSX:OTEXT)(NASDAQ:OTEX).
Open Text manages and store data for enterprise companies, and has been signing on household names for years now. This recurring revenue has meant the company continues to see strong gains in revenue and share price during this downturn.
In fact, its latest earnings report saw revenue grow year over year by 11%, while it’s usually around 3%. Recurring revenue, meanwhile, grew by 22% year over year, representing 83% of total revenue.
Warren Buffett and others are preparing for a crash, and you should too. By buying up stocks like Open Text, you’ve created a chance not just to protect yourself in another downturn, but also to emerge even better than you were before.
To take a note from the great Warren Buffett, and start getting fearful. Then, when the markets are down, make sure you’re ready to get greedy again!
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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 has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool recommends Open Text and OPEN TEXT CORP 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).