Stocks have had a remarkable run in recent years. Even after the market had to climb back from the plunge it endured early in 2020, the S&P 500 has doubled in value over the past five years…
Of course, nothing lasts forever, and with many stocks nearing their all-time highs and the market looking frothy, there is growing chatter about when the next crash will come.
No one can know exactly what Wall Street will do over the next day, week, month, or year. But this does seem like a good time to at least be planning for the possibility of an economic downturn, and considering what stocks you might want to be holding for defensive purposes if the market does go south.
When the tide goes out, you’ll be glad you’re swimming with the master
Lou Whiteman (Berkshire Hathaway): Warren Buffett’s Berkshire Hathaway has underperformed the broader market over the past five years, leading some to wonder if the Oracle of Omaha might have lost his fastball.
Berkshire has added a few tech stocks including Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) to its holdings in recent years, but its portfolio is not designed to compete against the sort of NASDAQ-fueled tech rally we have seen. However, it is set up well to survive a downturn, with broad exposure to a number of sectors that tend to hold up even when the tech sector is sinking.
Berkshire Hathaway makes a significant amount of its money from the insurance and utility sectors, which aren’t particularly sexy in good times, but which fare well in bad ones because of their steady income streams. It also owns Burlington Northern Santa Fe, one of the two primary freight railroads serving the Western United States.
The company’s stock portfolio contains an assortment of value investments, including a basket of the nation’s largest banks, Coca-Cola (NYSE:KO), and supermarket operator Kroger (NYSE:KR). Berkshire also has more than $140 billion in cash that it can put to work buying assets should equity prices drop.
The bottom line is the best thing you can do to prepare for a downturn is to buy a basket of quality companies, and remember not to panic sell when the bear emerges. Buying Berkshire gives you that diversification, with the added benefit of steady hands overseeing the portfolio.
Buffett in his 2004 letter to shareholders likened investing to swimming in the sea, saying “only when the tide goes out do you discover who’s been swimming naked.” With Berkshire, expect no surprises.
One of 2009’s best stocks could be great again if the market crashes
John Rosevear (Ford Motor): Ford and its longtime investors learned a lot from the big market crash of 2008 and early 2009. Among other things, Ford learned the value of having a big cash reserve that helped it continue new-product development while rivals were slashing budgets — and investors learned (or relearned) that shares of automakers with fresh products tend to rise early in economic recoveries.
2020 was a hard year for the global auto industry, but Ford came through it in fine shape. It did take on a lot of new debt after idling its factories last spring because it remembered that lesson about having cash in a crisis. But as it turned out, Ford…
Continue reading at THE MOTLEY FOOL