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FTSE 100 choppy after crash: What would Warren Buffett buy?

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One of the most prolific writers on how to profit from a FTSE 100 stock market crash is also one of the world’s richest investors.

Warren Buffett is a man who needs no introduction. But the fact that he makes more money before breakfast than you or I will ever see in our lifetime is reason enough to listen closely to what he says.

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In the last decade Warren Buffett has nearly doubled his fortune from $47bn to $88.8bn. That includes his investments in multinational businesses at the depths of the 2008 financial crisis.

Consider this line from great American philanthropist and investment manager Shelby Cullom Davis. It’s a cracking quote. “You make most of your money in a bear market,” he said. “You just don’t realise it at the time.”

What would Buffett buy?

Ten years ago, markets were choppy in the wake of the liquidity crisis as bank stocks plummeted. Buffett said then: “Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance.”

We have come to the end of an 11-year bull run. Markets rocketed ever upwards since the fallout from the 2008 financial crisis. But that asset price bubble has come to a sharp and ugly end.

So we need to look at the FTSE 100 companies and sectors that are most likely to come out of this period relatively unscathed. I’m talking about National Grid, Bunzl, and GlaxoSmithKline, for starters. They are in sectors that tend to do best in times of turmoil: consumer staples, utilities, and pharmaceuticals.

These three are at the top of my list because they fit Warren Buffett’s main three investing criteria. They earn good returns on the capital needed to run their businesses. They are run by able management teams. And they are available at a sensible price.

These FTSE 100 companies also generate lots of cash, have very strong balance sheets, and have a vanishingly small chance to go bust.

In his 2015 letter to Berkshire Hathaway shareholders, Buffett wrote: “Cash is to a business as oxygen is to an individual. Never thought about when it is present, the only thing in mind when it is absent.”

In September 2008 “many long-prosperous companies suddenly wondered whether their checks would bounce,” he added. “Overnight, their financial oxygen disappeared.”

Investing in troubled times

UK investors face something even worse this time around than the depths of despair at the end of the last decade.

Data by the Centre for Economics and Business Research released on Monday, 30 March, showed a grim picture for the UK. Unemployment would double, analysts said, while second-quarter GDP would drop by as much as 15%. That figure far outweighs anything seen during the worst of 2008. In the fourth quarter of that year, GDP fell by 2.2%.

The rest of 2020 now poses a deep and sustained recession. Retail chain giants BrightHouse and Carluccio’s have gone into administration. I think many more will fall. We are just at the beginning of a new business cycle of boom and bust. Thankfully, this time offers much more opportunity for FTSE 100 investors to gain than in a time when everything is overvalued.

My advice would be to drip feed into an ISA or SIPP and focus on diversified, stable FTSE 100 companies in the sectors I mentioned.

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Tom Rodgers owns shares in GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. 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.

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