Warren Buffett has seen a lot happen in financial markets over his decades of investing. He’s survived many periods of market volatility, including Black Monday in 1987, the dotcom crash in 2000, and the 2008/09 financial crisis. With the escalations in tensions in the Middle East and political uncertainty in America, here are a couple of ways I’m copying previous actions from the great man.
Buying great stocks on the cheap
Buffett has been quoted as saying to “never bet against America. That is as true today as it was in 1789, during the Civil War, and in the depths of the Depression.”
So even during volatile periods when the market may be falling, he’s still not looking to bet against America (or the broader stock market). This side of the pond, I can make the same case for never betting against the UK.
History shows me that during previous crashes, Buffett has used the opportunity to buy stocks at cheap levels with the assumption that the market will eventually recover. It always has.
Therefore, I’ve made a watchlist of stocks that I’d look to buy if we do get a market crash. For example, I like Trustpilot as a business. Yet the 160% share price rise over the past year and a rich price-to-earnings ratio of 185 means I think it’s overpriced. Yet if we saw the stock fall during a crash, this is a stock I’d buy.
Having a long-term view
Another quote from Buffett is that investors should “only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
If we did get a crash, it could be a while before the stock I buy recovers. Yet if I believe it to be a fundamentally sound company, this shouldn’t matter. For example, I like Bloomsbury Publishing (LSE:BMY).
The stock is up a whopping 80% over the past year. However, it’s also up 187% over a broader five-year period. This shows me that it isn’t just a flash in the pan. The business has performed well over a long period of time. This gives me confidence that even if the market does crash, it can recover.
The leading independent publisher is in a great position right now, as demand for traditional books alongside digital alternatives continues to be strong. The half-year results showed “a fifth consecutive double-digit growth in the first half with revenue growth of 32%”.
It’s working towards its vision for 2030, with clear steps to increase profitability along with the portfolio growth in general. As a risk, earlier this summer Sir Richard Lambert stepped down from being chairman after seven years in the position. Although his replacement is capable, he certainly has large boots to fill!
I’m thinking about buying the stock and imitating Buffett in my purchase while being happy to hold it over any potential market crash.
