The veteran of stock market investing has seen multiple market crashes in over 60 years of his prolific career. It comes as no surprise that investors look to the 90-year-old Oracle of Omaha when it comes to preparing for a market crash or correction. Here are some of the most useful lessons you can learn from Warren Buffett.
A prolific track record
Buffett began as an investment salesman at Graham-Newman Corp during the ‘50s and progressed to become the wealthiest person on the planet in 2008 when the markets collapsed. He made his massive fortune worth billions by investing in the stock market, making very few mistakes along the way.
He is an avid believer of the value investing philosophy. Buffett’s success has been primarily through his ability to identify value stocks across various sectors. Warren Buffett looks at his investments from an owner’s point of view instead of just a unitholder. He believes that he should not invest in the stock for the sake of buying a stock and selling it the next day for meagre profits.
Buffett rarely makes any short-term purchases. Instead, he believes in understanding the underlying company and owning a piece of it to leverage its success.
Buffett is always prepared for the unexpected market crashes or corrections. We have seen this over the decades; he never makes panicked decisions to sell off or acquire stocks in volatile markets. One of the recent examples of his preparedness is his decision to sell off all the airline holdings early last year.
At the time, many investors began buying airline stocks in hopes of a sharp turnaround in a few months. Buffett had the foresight to understand that airlines had an uncertain future considering the circumstances brought on by COVID-19. It has been over a year since the pandemic struck, and several experts are predicting that business air traffic might be reduced by 40% in the post-pandemic world. Airlines might not make the same profits from the pre-pandemic era.
Buffett is preparing for a market correction
Buffett’s moves are also hinting towards another market crash. This stock market correction could be worse than the one last year. His investment firm Berkshire Hathaway has been increasing its cash pile throughout 2020. It indicates that he is finding most stocks overvalued right now and is waiting for a crash to pounce on stocks with his cash.
Warren Buffett has also seemingly broken a cardinal rule about his stance on gold. The Oracle of Omaha invested in Barrick Gold shares last year, clearly defying his long-standing aversion to the rare yellow metal. Gold rises in value when markets become volatile, driving profits for gold producers like Barrick higher.
Buffett could be holding on to Barrick shares to capitalize on its increasing valuation if gold prices rise due to a market crash.
A defensive asset to consider
Whether or not you believe that Buffett’s recent moves hint at an impending market crash, it would be wise to make defensive investments to protect your capital. Fortis (TSX:FTS)(NYSE:FTS) is the epitome of reliability and stability on the TSX in a volatile market.
Fortis is a non-cyclical stock. The company is a utility provider that has customers across Canada, the U.S., and the Caribbean. It provides an essential service and generates most of its revenue through highly regulated and contracted assets. It means that Fortis can create a predictable cash flow, regardless of economic conditions.
The company can use its predictable income to finance its expansion plans and increasing dividend payouts comfortably. Fortis could be an excellent asset to consider if you are looking for a place to park your funds to ride out the wave of another market crash.
Buffett has not yet explicitly stated if he thinks a market crash is going to happen soon. However, his recent investment decisions seem to suggest that he believes it is imminent. Investing in a reliable stock like Fortis can help you keep your capital safe in case a market crash happens.
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 Adam Othman 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).