Market crashes come and go, making and breaking multi-billion-dollar funds, but Warren Buffett seems to remain mostly unharmed through it all. Over his prolific stock market investing career, Buffett has seen several bear markets but managed to pull through stronger on the other side.
It is no surprise that he is called the Oracle of Omaha. Warren Buffett seems to know exactly how to prepare for a stock market crash and capitalize on it for the opportunities it provides rather than facing staggering losses like many others.
I will discuss an aspect of Buffett’s strategy to remain successful through stock market crashes and how you can try to emulate it to become a wealthier investor after a market crash.
Buffett has cash ready
Warren Buffett has significant portfolio allocation towards high-quality stocks that have stood the test of time over the decades. Many people might assume that he is very adventurous with his trading decisions because of the wealth he has accumulated in his career. However, that could never be further removed from the truth.
Buffett has always played it smart, but not in a way that he is overly cautious. He holds a substantial portion of his capital as cash. He is ready to pounce on value opportunities on the stock market when they pop up.
Warren Buffett also begins offloading overvalued investments and increasing his cash holdings. In fact, Buffett did exactly that before the pandemic struck. His conglomerate Berkshire Hathaway was sitting on a massive cash pile that most people expected him to begin splashing around during the market crash last year.
However, Buffett held on to his capital and kept increasing his liquidity. The stock market has since recovered, and he has yet to spend significant money on acquisitions. It is a sign that he is preparing for another market crash.
Looking for high-quality value opportunities
Buffett’s success can be attributed to his ability to recognize companies trading significantly below intrinsic values on the stock market. He invests in companies that take massive beatings due to harsh economic environments. Buffett can identify stocks that will increase in value in the long run and purchase shares of those companies at cheap valuations.
Holding on to the shares for decades has led to him becoming the most successful stock market investor of all time. Brookfield Renewable Partners (TSX:BEP.UN)(NYSE:BEP) could be a potential target for value investors seeking long-term capital growth.
It is no secret that renewable energy generation will become a major growth driver in the stock market in the coming few years. The demand for green energy is constantly increasing. Fossil fuels will not last forever, and green energy is the only viable alternative.
Brookfield is my top pick in the renewable energy sector. It offers its investors a diverse portfolio of renewable energy assets distributed worldwide. The company is already in an excellent position to play a leading role in this growing industry.
Trading for $58.88 per share, BEP pays its shareholders at a decent 2.55% dividend yield. Its valuation has increased by 152% since the March 2020 market bottom, and it has plenty of room to grow.
Buffett’s biggest wins on the stock market came because of his ability to recognize companies with significant long-term value. Additionally, he increased his cash holdings before market crashes, so he can get the best possible deal on value stocks due to fear-induced sell-offs.
You could consider increasing your liquidity and seeking long-term value stocks that you can buy on the dip if you expect another market crash to come soon. Brookfield Renewable Partners could be an excellent pick for this purpose.
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Fool contributor Adam Othman has no position in any of the stocks mentioned.