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22 June 2020 00:36

If there’s one investor who’s prepared for another stock market crash, it’s Warren Buffett.

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The market's rapid 25% rebound might have left you thinking that this stock market crash is over. In this piece I'll look at two reasons to be cautious — and I'll explain what I'm doing with my share portfolio right now. When market conditions are volatile, the risk of sudden movements is higher than usual. The last time the volatility index was this high was in 2011, when it looked like the euro could collapse. Admittedly, VIX is down from the much higher levels we saw in March and early April.

berkshire hathaway

Warren Buffett isn't buying During the 2008/09 stock market crash, we saw US billionaire Warren Buffett wade into the markets. Mr Buffett used some of his legendary cash pile to take large stakes in distressed businesses such as banks, on which he later made big profits. This time around, Mr Buffett has been pretty quiet. He's ditched his airline stocks — it's too soon to know how smart that was — but as far as we know, he hasn't bought much. Given that Mr Buffett's company Berkshire Hathaway had $137bn of cash on hand at the end of March, I think it's fair to say that he'd be buying if he could find decent opportunities.

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What I'm doing in this stock market crash Over the long term, I'm confident the stock market will rise. So it's not always easy to know when the best time is to buy. However, I don't want to sit on cash forever, missing market gains while I wait for the perfect moment. The second thing I do is to buy shares in companies I'm confident can survive difficult periods and return to profitable growth. My strategy allows me to safely ignore short-term market dips, as I always expect my stocks to deliver earnings and dividend growth over the long term.

Will the market crash again? For what it's worth, I think the worst of the crash is over. To make money from stocks, I think you need to stay on board and be prepared for a bumpy ride. The post The stock market crash isn't over yet. Here's what I'm doing now appeared first on The Motley Fool UK. The Motley Fool UK owns shares of and has recommended Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares) and short January 2021 $200 puts on Berkshire Hathaway (B shares). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors. The Motley Fool Canada » Dividend Stocks » 3 Ways to Invest Like Warren Buffett This Summer The COVID-19 pandemic has rattled the global economy and confounded some investors in 2020. In the 2007-2008 crisis, legendary investor Warren Buffett made savvy moves that paid off big over the next decade. Buffett made investments in Goldman Sachs and Bank of America, the latter of which totalled $5 billion at a nice discount. Regardless, Warren Buffett has proven his mettle over a long and storied career. Warren Buffett and value investing Value investing is an investment strategy that involves buying securities that appear under-priced according to fundamental analysis. Warren Buffett is one of the most influential proponents of this style — a strategy that served him well in the wake of the 2007-2008 financial crisis. In 2020, investors have been forced to act quickly to market volatility. Sun Life Financial is an insurance and financial services company that offers nice value right now. Shares have dropped 13% in 2020 as of close on June 17. Shares last possessed a favourable price-to-earnings ratio of 12 and a price-to-book value of 1.3. Moreover, Sun Life last declared a quarterly dividend of $0.55 per share, which represents a solid 4.4% yield. Buffett's bank stock bet in the late 2000s and early 2010s paid off hugely in the years to come. Toronto-Dominion Bank and its peers are trading at a discount as we approach the summer season. Shares of TD Bank have dropped 12% in 2020, but the stock is up 12% month over month. TD Bank stock last had a P/E ratio of 10 and a P/B value of 1.2. The bank last paid out a quarterly dividend of $0.79 per share, representing a strong 5.1% yield. Target sectors with good long-term potential More than his success as an investor, Warren Buffett is also renowned for his optimism. When the COVID-19 outbreak began in North America, he continued to reiterate his long-term faith in the United States economy. While this is certainly a time of crisis, investors should not retreat into despair. Some investors have been critical of Warren Buffett's apparent reticence in 2020. When ti comes to investing, patience is a crucial trait, especially in a turbulent market. Panic selling during market retreats, such as what we saw in the late winter and early spring, will only see you realize losses. A lack of patience can also hurt investors in a bull market. Kinaxis is one of my favourite stocks on the TSX. I'm bullish on Kinaxis in the long term, but this is a high valuation in a hot market. Value investors should be content to wait on better prices even if we miss out on near-term gains. In a recent article, I discussed the possibility of another stock market crash in 2020. Economic data looks absolutely dreadful at the moment (the UK economy shrank by a record 20.4% in April) and share prices simply don't reflect this. Worryingly, a recent survey found that nearly 70% of professional money managers expect another stock market crash in the near future. If there's one investor who's prepared for another stock market crash, it's Warren Buffett. Recently, the greatest investor of all time has made a number of moves designed to minimise portfolio risk (and profit from lower share prices) in the event of a crash. Here's a look at what Buffett has done to prepare for another crash. Buffett has stockpiled cash The first thing Buffett has done to prepare for another crash is stockpile cash. At the end of March, his investment company, Berkshire Hathaway, had a record $137bn in cash and liquid short-term investments, up from $128bn at the end of September. This cash pile will give Buffett plenty of options in the event of another stock market decline. "The position isn't that huge when I look at worst-case possibilities," he added. To be clear, Buffett doesn't see cash as a good long-term investment. In 2011, Buffett noted that bank deposits were "among the most dangerous of assets," due to inflation. If share prices do fall again, cash will give him the firepower to take advantage of opportunities that may arise. Buffett sold these stocks Another thing Buffett has done to prepare for another stock market crash is offload his airline stocks. He sold these stocks because he believes the outlook for airlines has changed due to Covid-19 and that there's risk to the downside now. "The world has changed for the airlines," Buffett said. "The future is much less clear to me," he noted about the airline business. Another stock market crash: are you ready? Ultimately, these two moves should protect Buffett from another crash, to a degree. If share prices do fall, he's ready to take advantage. While cash is a terrible investment over time, it's a powerful asset in a stock market crash because it enables you to buy cheap stocks. And by offloading his airline stocks, Buffett is less exposed to the uncertainty associated with Covid-19. It could be a good time to think about risk management. The post Warren Buffett is ready for another stock market crash. appeared first on The Motley Fool UK. Views expressed in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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