Investors are looking for signs of how the stock market can sustain its upward trend. COVID-19 continues to threaten public safety and endanger economic recovery. The TSX posted a record-high 18,042.10 points on January 8, 2021, notwithstanding the spiking cases of coronavirus.
However, the fear of a market crash is back. People are intently watching the GOAT of investing once more. Legendary investor Warren Buffett didn’t move a muscle when COVID-19 struck. He wasn’t his usual self and avoided the market at the height of the crash.
In the U.S., a new administration will take the reins. A political storm is still brewing along with the rising death toll from COVID-19. If the Oracle of Omaha maintains a defensive stance in January, brace yourself for a 2021 market crash.
Swelling cash reserves
Warren Buffett has +US$140 billion cash reserves that he’s not deploying. Some analysts say the reason Berkshire Hathaway bought back its shares is that there are no viable options. Others suggest the gauge is the cash stockpile of Buffett. If the treasure chest overflows with cash, a market crash is imminent.
Buffett once said the worst investment you can have is cash. He adds that cash will become worthless over time. However, Buffett always keeps enough cash around. By holding cash, he can feel comfortable and not worry about sleeping at night.
Biding his time
Warren Buffett is a savvy investor and is playing it smart in 2021. He is biding his time and prefers to be cash heavy while waiting for the opportunity to buy or bail out good companies in financial trouble. Since Buffett is a value investor, he will not invest in just any stock. The company must have a strong history of profitability.
Before the pandemic, Buffett said, “Market turbulence is inevitable. The years ahead will occasionally deliver major market declines that will affect virtually all stocks.” Let’s wait for Berkshire’s next moves to see if Buffett is ready to be greedy while others are afraid.
Investors fearing a market crash will not run to the hills. Instead, they will seek the safety of the proverbial safe asset like Fortis (TSX:FTS)(NYSE:FTS). This $24.45 billion regulated electric utility company is the hands-down choice when the market is likely to turn sour.
You have capital protection regardless of the market environment. Likewise, dividend income will keep flowing to income investors. You can purchase the stock today at $52.35 per share and partake of the decent 3.84% dividend. Fortis has defensive appeal because of its bond-like features.
Since 99% of its utility assets are regulated, the revenue stream is stable and recurring. The regulated electric and gas business in Canada and the Caribbean contribute 40% to total revenue. Fortis has 10 utility companies under its wings and serving customers in nine U.S. states, three Caribbean countries, and five provinces in Canada.
The latest plan of management is to increase dividends by 6% annually through 2024. Fortis is likely to keep its 47 consecutive years of dividend increases intact in 2021. You don’t have to time the market to invest in this defensive all-star.
Followers and critics alike will be observing Warren Buffett like a hawk in 2021. I don’t believe the GOAT of investing has lost his touch. He will make his moves at the right time.
Speaking of Warren Buffett and his moves that indicate an imminent market crash...
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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). The Motley Fool recommends FORTIS INC and recommends the following options: short January 2023 $200 puts on Berkshire Hathaway (B shares), short March 2021 $225 calls on Berkshire Hathaway (B shares), and long January 2023 $200 calls on Berkshire Hathaway (B shares).