Warren Buffett has always held a lot of cash. However, in 2020 his cash pile reached a record level of about $ 137 billion.
together Berkshire Hathaway Purchasing a gold miner Barrick goldThis has suggested to some investors that Omaha’s Oracle is preparing for the next stock market crash.
However, the long history of subsequent sale of gold miners’ shares and holding huge amounts of cash shows Buffett is ready to take advantage of the next market recession.
Following a similar approach is of great value to all investors. By holding cash and identifying high-quality companies ahead of bear markets, investors can take advantage of the market cycle.
Warren Buffett’s Large Source of Funding
Warren Buffett may hold cash for two main reasons. The first is to give a sense of security. Under-invested investors can better overcome the unexpected financial challenges that would otherwise have to sell their shares. For example, they may have lost their jobs or have unexpected home repair costs that require immediate access to cash.
The second reason to hold cash is to take advantage of the market downturn. The stock market will almost inevitably experience a major crash in the coming years. After all, its past performance shows that the market recovery experienced in late 2020 will eventually lose momentum. Some crises and threats worsen investor sentiment and significantly reduce stock price valuations.
Investors such as Warren Buffett are in a financial position to take advantage of them. As the 2020 stock market crash has shown, the opportunity to buy a company at a low price can be relatively short.
Identify high-quality companies prior to a market crash
Not only does Warren Buffett hold a large amount of cash, but identifying high-quality companies prior to a market crash can be a healthy move. For example, at this point, investors may be able to find many companies with a solid financial position and competitive advantage. However, it may be traded at a price without a safety margin.
Monitoring the financial performance and development of such companies can be a healthy move. This will give investors a comprehensive understanding of their business and enable them to respond quickly to short-term stock price declines. This may allow them to buy high quality companies at low prices. In the long run, such strategies are very effective in generating returns that outperform the market.
Planning for the next market recession
Warren Buffett seems to be always ready for the next stock market crash. His large cash position means he can invest quickly and resolutely in the market recession. Today, investors in the same position by holding cash and identifying quality companies can generate impressive returns on the recovery of the equity market.
Motley Fool owns and recommends Berkshire Hathaway (Class B Share) shares and recommends the following options: A $ 200 call to the short Berkshire Hathaway (B Share) in January 2021 and a $ 200 call to the long Berkshire Hathaway (B Share) in January 2021. Stupid contributor Peter Stevens does not have a position in the company mentioned.
Is Warren Buffett already planning the next market crash?
https://www.fool.ca/2021/01/26/is-warren-buffett-already-planning-for-the-next-market-crash/ Is Warren Buffett already planning the next market crash?