- The S&P 500 went into bear market territory this week, ending a historic decade-long run.
- Warren Buffett is poised to “buy when there’s blood in the streets.”
- The Oracle of Omaha has $128 billion in spare cash to buy stocks during this downturn.
The Dow Jones and S&P 500 have officially entered a bear market. And nobody is better prepared for this than Warren Buffett.
The Oracle of Omaha has $128 billion sitting on the sidelines, waiting to pounce on this market.
He waited until there was blood in the streets.
Well, the streets are bloody. And he’s ready to buy. Asked whether he was worried about this week’s stock market crash, he was unfazed:
The 2008 financial crisis “was much more scary, by far, than anything that happened [this week].”
Of course he’s not worried! He’s got $128 billion spare cash to go on a shopping spree for discount stocks and companies.
Warren Buffett knew this crash was coming
Many have criticised Warren Buffett for missing out on the late stage of the stock market’s 11-year bull run.
Berkshire Hathaway’s own shareholders questioned why he wasn’t more exposed to equities as the firm’s cash pile grew to $128 billion.
It must have taken the willpower of a Jedi master not to put that money to work. And now we know why.
He is sitting on a $128 billion in cash for a reason. Buffett is fully aware of the gains he has forgone, yet still continues his ways. Buffett is not dumb! – Lance Roberts, RIA Advisor.
Cash is King
Buffett’s time-honoured investment strategy is to buy strong companies at low value. He recently said he was desperately seeking an “elephant-sized acquisition” but lamented that everything was too expensive.
Prices are sky-high for businesses possessing decent long-term prospects.
They’re not sky-high now.
When the stock market is in free fall, the king-makers are the ones with cash, and lots of it. They decide where the market goes. They decide which companies to buy.
Right now, Warren Buffett is a $128 billion king-maker.
The stock market will bottom out soon
Despite this week’s stock market panic, a bottom may soon be in sight.
Goldman Sachs analyst Peter Oppenheimer said this bear market is “event driven” due to the coronavirus trigger. As such, it should recover faster than structural bear markets like 2008.
At this stage, we think the balance is still in favor of this being an event-driven bear market, suggesting that the rebound in equity markets will be swift. On average, these kinds of bear markets triggered by exogenous shocks have seen declines of 29% and lasted nine months, with markets regaining their previous levels within 15 months.
The ‘smart money’ is already looking for discount stocks
While the world panics, smart investors are already looking for the cheap opportunities. Kristina Hooper, chief global market strategist at Invesco, is eyeing up tech stocks again as China recovers.
China is now in recovery mode — both from a medical perspective and an economic perspective. In the U.S., tech stocks look particularly attractive because of their growth potential over the longer run.
Vanguard and Fidelity both said that clients were adding to their portfolios during this downturn.
Customers are using the market volatility to add equities to their portfolio. The most common scenario is that customers already own the position, believe in the company, and are adding to their existing position at a ‘discount’ – Robert Beauregard, Fidelity.
This stock market selloff ‘oozes’ panic
Jim Paulsen, chief investment strategist at the Leuthold Group, is also starting to “nip away at stocks on these down days.” Speaking on CNBC’s Squawk Box, he said:
I don’t know where the bottom is here, I think we’re close to it though, I really do. This thing just oozes panic to me. The ferociousness and speed at which stocks have fallen and now bond yields, looks more like the end of a colossal panic than the beginning.
One thing is for sure. This is a much-needed reset in the over-leveraged stock market. When the dust settles, there will be bargains. Warren Buffett will be buying them.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com.
This article was edited by Josiah Wilmoth.
Last modified: March 12, 2020 7:55 PM UTC