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Worried about a stock market crash? Try investing like Warren Buffett and Nick Train

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In previous recoveries from a stock market crash, there’s been a rebound followed by another dip, making the market’s performance pattern look a bit like a ‘W’. Down, up, back down again, and then up. Could it be the same this time around?

Nobody really knows. The banks are pumping huge amounts of money into the system and using a lot of the weapons in their armoury.

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Coupled with furloughing in the UK and loans to businesses, perhaps the damage has for now been dampened. But it’s possible investor confidence could be shaken if and when these measures are lifted and the wound under the plaster is worse than expected.

It’s not all doom and gloom though. Currently, the market is doing well and could continue rising, given the stock market more of a ‘V’ shape.

Regardless of what happens in the short term, investing like long-term buy-and-hold masters such as Warren Buffett and Nick Train ought to serve you well. They’ve earned fantastic returns for investors and know what they’re doing.

The Buffett investment strategy 

With a buy-and-hold approach to investing, there’s less pressure to time the market to perfection like there is with short-term trading.

Instead, you can buy individual shares when they represent good value as characterised, for example, by a low P/E. Then keep holding on to the shares until such time as the reason for investing no longer exists.

For example, the company has become too expensive or isn’t using its capital as well as it could, shown by a lower ROCE.

The buy-and-hold investment style makes it easier to purchase quality companies at a decent price. That’s because you’re not looking for the share price to jump 50% higher by tomorrow as you are when short-term trading.

You simply want confidence that you’re buying a great company at a fair price. That way you can patiently wait for the share price to rise over a period of years.

Finding quality companies

On a practical level, of course, finding and buying quality companies and then being patient isn’t as easy as it sounds. It requires skill in the first place, followed by a strong and determined mindset thereafter.

When it comes to finding the types of companies favoured by Buffett and Train, I’d look for those with strong brands. This gives them pricing power and customer loyalty, both of which are strong platforms from which to deliver long-term profitability.

Train, for example, invests in Nintendo, Disney, Unilever and Diageo, while Buffett is a famous investor in Coca-Cola and American Express.

Many of these companies also have large moats protecting their products and services. The harder it is to compete with them, the better it is for investors.

The companies should also have room to grow, so target industries that aren’t in decline. And lastly, they should have strong balance sheets.

I believe when you find companies like these and hold them through thick and thin, you’ll have gone a long way towards investing like  Buffett and Train. 

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Andy Ros owns shares in Diageo. The Motley Fool UK owns shares of and has recommended Unilever and Walt Disney. The Motley Fool UK has recommended Diageo and recommends the following options: long January 2021 $60 calls on Walt Disney and short July 2020 $115 calls on Walt Disney. 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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