Market Crash 2020: Do Not Fear — Buy Like Buffett
The year 2020 will be known as a year of wild stock market fluctuations. When I consider the beginning of the year, there were almost unlimited optimism in the market.
I remember feeling somewhat apprehensive as an investor. It felt like markets could go up for infinity, which is likely why stock markets fell so fast and so hard. Nobody could possibly anticipate the shock a health crisis could have on the economy and markets.
Fear of missing out?
Over the past years, investors have battled the fear of missing out and the fear of losing money. It’s a fine line to walk. Problems occur when investors weigh one fear heavily over the other. At the start of the year, we feared missing out on the forever-bull-market.
Investors began to buy complacently and without concern for fundamentals. The massive run-ups on Tesla, Shopify, and Virgin Galactic are great examples. As the implications of COVID19 were fully realized in March, investors quickly reverted to the fear of losing money — then we saw one of the most severe market selloffs in history.
I wish I had listened to Warren Buffett’s sage wisdom, “Be fearful when others are greedy, and be greedy only when others are fearful.” Greed was strong in January.
Sometimes, I wish I hadn’t joined the hype and bought some plays I knew were overvalued. Now, when sentiment is low and valuations are low, I’m determined to do better. Fear is high, but it’s time to fight my emotions and take advantage of the market’s sell-side fear.
Buy like Buffett
While I can’t speak for Mr. Buffett, I can discuss some of the plays he has made through Berkshire Hathaway over the years. Berkshire Hathaway is cherished for its significant exposure to the U.S. financial industry. Similarly, Canada is recognized for its robust, well-regulated financial sector and list of high quality major banks.
Financials
Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM) is not a bank, but is one of the largest managers of alternative assets in the world. Yet, many Canadians have likely never even heard of it.
Like Mr. Buffett, BAM takes a counter-cyclical approach to investing. It buys distressed alternative assets (like real estate, infrastructure, and businesses), injects capital, and turns them around.
In a very- ow interest rate environment, institutional demand for high yielding alternative assets will only increase. Similarly, depressed economies present opportunities for BAM to acquire assets at distressed valuations. Right now, depressed, publicly listed companies could present excellent opportunities.
CEO Bruce Flatt recently commented that despite the crisis, he is confident in BAM’s disciplined strategy, its liquid balance sheet, and its diverse asset base. Given that Mr. Flatt has at times been considered the “Warren Buffett of Canada,” I wouldn’t be afraid to bet on him, his team, and BAM’s assets. The stock is cheap at only 16 times earnings, making it a great opportunity to invest.
Technology
Of course, Berkshire is best known for its play on Apple a few years ago. The TSX really has no Apple equivalent, but it does have some phenomenal software-as-a-service businesses. One company that continues to plow ahead through the crisis is Open Text (TSX:OTEX)(NASDAQ:OTEX).
The company manages critical business infrastructure such as enterprise cloud solutions, business networks, AI, and data security services for hundreds of businesses worldwide.
CEO Mark Barrenechea recently stated that Open Text remains very active, supplying critical business services, especially for companies forced to work from home. Likewise, they continue to operate technology conferences, just no longer in person.
As a result, it may actually see a ramp up in business over this period. Today, it’s a great buying opportunity. It trades with a 2% yield and a discounted EV/EBITDA of 11.3 times compared to peers such as Enghouse Systems at 17 times and Constellation Software at 28 times.
The Foolish takeaway
Although 2020 will be a year we all want to forget, it doesn’t have to be a year that we can’t learn from. We can use every experience, even the bad ones, to make better decisions in the future.
Warren Buffett reminds investors to act counter-intuitively to the market. So remember: When markets look the darkest, investment opportunities shine their brightest.
The post Market Crash 2020: Do Not Fear — Buy Like Buffett appeared first on The Motley Fool Canada.
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Fool contributor Robin Brown owns shares of Brookfield Asset Management. The Motley Fool owns shares of and recommends Brookfield Asset Management. The Motley Fool recommends BROOKFIELD ASSET MANAGEMENT INC. CL.A LV, Open Text, and OPEN TEXT CORP.
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