Even though Warren Buffett has seen a lot in his years, the pandemic-driven market crash was a bit different. Unlike the last recession, where there were specific economic triggers, the 2020 market crash was driven by something very “organic” (i.e., lack of demand). People were locked in their homes; retail businesses didn’t see any foot traffic, industries closed up or reduced production, and traveling shrunk to a bare minimum.
The Saudi-Russia oil crises fell pales compared to what the pandemic did for the oil demand in the world. And the worst part is that it wasn’t a one-time deal. The pandemic is far from over, and many countries are already fighting the second wave.
Whether the pandemic and its unique recession triggers was the reason, or Buffett simply had a change of heart, but he made some unusual moves recently.
Image source: The Motley Fool
The warning signs
Some of Buffett’s unusual moves can be taken as signs of an upcoming market crash. Like the fact that after several decades of denouncing the mighty gold, he bought a sizable position in a gold mining company. He also invested a substantial amount of capital in Japan. And he sold his stake in Restaurant Brands International, a company he helped form, even though it showed a remarkable recovery.
But another significant sign is what he didn’t do. He didn’t pull out the “big guns.” All his sizable investments together barely make up a substantial fraction of Berkshire Hathaway’s cash position. He might not have found anything else that seemed good enough to buy.
Or, there might be another market crash coming. Even before the March crash, Buffett insisted that the market was too overvalued. And during the market’s recovery, The Buffett Indicator reached dangerously high values, reiterating the fact that the market is indeed overvalued. If Buffett is waiting for another market crash to really put his cash to work, you might want to do the same.
A recovery stock
Northland Power (TSX:NPI) has shown a fantastic recovery after the market crash. The stock dropped about 37% during the market crash, and it did not only recover its pre-pandemic valuation by June, but the company also grew its market value well beyond that. It has grown its share price by 109% from its worst valuation during the crash.
If another crash comes, you can buy the company for its robust recovery and regain your capital (hopefully) in a matter of months. But it’s more than just a recovery stock. It’s a stable growth stock. Thanks to its focus on green energy and a diversified asset portfolio, the company may be a valuable addition to your portfolio as a long-term holding.
Foolish takeaway
Buffett’s moves aren’t the only indications that another market crash is coming. The signs are becoming more apparent every day; the question is when it’s going to come. It might be a sharp fall like the one we saw in March, or it might be a series of small drops with a protracted recovery. You will have to time your buy accordingly for maximum impact.
