Warren Buffett: a share market crash is coming

The legendary investor Warren Buffett — chair and CEO of Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B) — is famous for a number of reasons. First and foremost is the performance of Berkshire, which he has helmed since the mid-1960s.

According to our Fool colleagues over in the United States, since Buffett effectively took over the company, Class A Berkshire shares have gone from around US$12 in 1964 to today’s price of US$343,688 (no, that’s not a typo).

That’s a return of 2,863,966%, or around 20% compounded per year. Berkshire’s Class A shares are also currently the most expensive stock on US markets, and are the living proof of what happens when a successful company never splits its shares.

But apart from Berkshire’s stunning returns, Buffett is perhaps best known for the famous stoicism and opportunism he displays in times of share market turmoil. Buffett habitually does most of his buying when ‘others are fearful’ – in other words, when the markets are tanking.

Buffett tends to sit out of the markets when they are on a tear, waiting, and building his cash pile to deploy when the inevitable rainy day comes. That’s why Berkshire was sitting on more than US$140 billion in cash and cash equivalents (the largest cash pile the company ever had) at the start of 2020, when the markets were approaching new all-time highs.

Buffett: buying low, selling high

Now Warren Buffett has been buying in the months following the March share market crash. But Buffett’s recent buys have been far from ‘optimistic bets’. They include acquiring massive stakes in a range of Japanese industrial conglomerates like Mitsubishi. They also include a stake in Barrick Gold Corp (NYSE: GOLD), one of the largest gold miners in the world.

Gold is viewed by many investors as a ‘safe-haven’, hedge-against-a-crash asset, but Buffett has famously derided gold as an investment in the past. He once said something to the effect of ‘gold has no use, all you can do is cuddle it’. Yet his tune has evidently changed this year.

Buffett has also sold down some of his most successful US investments recently, namely Apple Inc (NASDAQ: AAPL) and Costco Wholesale Corporation (NASDAQ: COST), as well as a bunch of US bank shares.

It seems that the investor who likes to ‘be greedy when others are fearful, and fearful when others are greedy’ is a little fearful himself. And that, friends, is not a good sign for things to come.

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Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Apple, Berkshire Hathaway (B shares), and Costco Wholesale and recommends the following options: short January 2021 $200 puts on Berkshire Hathaway (B shares), long January 2021 $200 calls on Berkshire Hathaway (B shares), and short December 2020 $210 calls on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Apple and Berkshire Hathaway (B shares). We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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