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Tackle Market Gyrations With Buffett's Style of ETF Investing
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Global stock markets went into the tailspin again on Mar 16 despite global central banks’ co-ordinated efforts. Wall Street saw the biggest single-day slump since 1987 in spite of the Fed’s adoption of crisis-era policies. The key U.S. indexes were down more or less 12% each. The Nasdaq’s percentage decline was the largest on record (read: Beat Virus With 2 Sector ETFs & Stocks That Survived 2008 Crisis).
If the series of recession predictions by economists and central banks’ super-dovishness were not enough to spook investors, President Trump’s latest warning that the crisis may stretch to the summer months came as a body blow for Wall Street.
Notably, the past month saw an acute bloodbath, with the S&P 500-based (SPY - Free Report) down 28.9%, Dow Jones-base (DIA - Free Report) down 31.1%, the Nasdaq-100-based (QQQ - Free Report) down 27.9%, Europe-based VGK down 34.1%, emerging markets-based (EEM - Free Report) down 28.4%, Asia-based AIA down 22.8% and all-world ACWI down 30.2%.
U.S. markets are officially in the bear market. Goldman Sachs predicted on Mar 13 that the S&P 500 could slump 20% more before bottoming out and rebounding through the rest of the year. Against this backdrop, investors must be interested in knowing how to navigate the market turbulence.
Adopting strategies from billionaire investor Warren Buffett is every investor’s dream. In the coronavirus situation too, investors can follow his suggestions about “investing in a bear market” (as published on fool.com).
"Be Greedy When Others Are Fearful"
When others are fearful and there is a steep market crash, a value buying opportunity can come up. No crash is going to stay for eternity. The U.S. economy survived the “1919 Spanish Flu epidemic, the Great Depression, World War II, 9/11, and the 2008 financial crisis,” then why not coronavirus?
Should you board the beaten-down airlines ETF U.S. Global Jets ETFJETS or American Airlines Group Inc. (AAL - Free Report) on dirt-cheap valuation? Airlines stocks belong to a favorable Zacks industry (placed at the top 31% of 250+ industries). Moreover, Warren Buffett had billion-dollar investments on the four big airlines in late-2019. This shows that Buffett was hopeful about airlines stocks just a few months ago.
The players in the industry are resorting to restructuring measures to adjust to the virus situation. U.S. airlines are on the lookout for government assistance of more than $50 billion. Trump also plans to support the airline industry “100%”, though no details are revealed yet.
Delta DAL), American Airlines and United Airlines (UAL - Free Report) — all have resorted to steep capacity reductions as global air travel has almost come to a halt. The trio are cheap too; forward PE of AAL and UAL are now somewhat more than 3x while DAL has it at 5.62x. The fund JETS has a PE of 9.51x.
Buffett also sees bank stocks as “very attractive compared to most other securities.” Banks make up big part of Berkshire Hathaway’s portfolio. SPDR S&P Bank ETF (KBE - Free Report) has been another loser amid the virus scare. So, one can invest with a long-term view as the present scenario is definitely not in favor of banks.
“Cash in King”
In recent years, high valuation of stocks has kept Buffett from making a big-ticket acquisition. Berkshire has now about $125 billion in cash and short-term investments.
BlackRock also says the same. Sergio Trigo Paz, who helps oversee the $1.6-billion BlackRock’s Emerging Markets Flexi Dynamic Bond Fund, beefed up the portfolio’s cash holdings to 20% by early February, while trimming positions in high-yield bonds.
Cash and short-dated fixed income may play a greater role in providing stabilization in a portfolio. SPDR Bloomberg Barclays 1-3 Month T-Bill ETFBIL, iShares 1-3 Year Treasury Bond ETFSHY and iShares Short Treasury Bond ETFSHV attracted about $3.72 billion, $3.07 billion and $2.02 billion in assets, respectively (read: Investors Love These ETF Areas Amid Virus-Led Bear Market).
Buffett’s “Favorite Holding Period is Forever"
A well-known Buffett quote is, "Our favorite holding period is forever." Buffett sees owning stocks as owning businesses. He takes interest in lasting companies that will grow over decades.
As markets skidded on the virus scare, Buffett warned investors not to “buy or sell” on the headlines. “Has the 10-year or 20-year outlook for American businesses changed in the last 24 or 48 hours?” Buffett asked on CNBC, as quoted on MarketWatch.
Investors can bet on SPDR Portfolio S&P 1500 Composite Stock Market ETFSPTM, First Trust Cloud Computing ETF SKYY, Health Care Select Sector SPDR ETF (XLV - Free Report) and Vanguard Dividend Appreciation ETF (VIG - Free Report) with a long-term view.
Quality Picks May Help Survive the Shock
One should bet on quality stocks and ETFs amid such acute scare. Buffett prefers economic moat investing, which refers to a business' ability to maintain competitive advantage over competitors. VanEck Vectors Morningstar Wide Moat ETF (MOAT - Free Report) can thus be given a look.
Stocks with a history of consistently growing dividends should also survive the downturn. iShares Core Dividend Growth ETFDGRO (yields 2.70% annually) makes a good pick in this respect. Products like iShares Edge MSCI USA Quality Factor ETF (QUAL - Free Report) and non-cyclical Consumer Staples Select Sector SPDR Fund (XLP - Free Report) should serve the purpose too (read: Is the Acute ETF & Stock Selloff an 'Overreaction' or Justified?).
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Tackle Market Gyrations With Buffett's Style of ETF Investing
Global stock markets went into the tailspin again on Mar 16 despite global central banks’ co-ordinated efforts. Wall Street saw the biggest single-day slump since 1987 in spite of the Fed’s adoption of crisis-era policies. The key U.S. indexes were down more or less 12% each. The Nasdaq’s percentage decline was the largest on record (read: Beat Virus With 2 Sector ETFs & Stocks That Survived 2008 Crisis).
If the series of recession predictions by economists and central banks’ super-dovishness were not enough to spook investors, President Trump’s latest warning that the crisis may stretch to the summer months came as a body blow for Wall Street.
Notably, the past month saw an acute bloodbath, with the S&P 500-based (SPY - Free Report) down 28.9%, Dow Jones-base (DIA - Free Report) down 31.1%, the Nasdaq-100-based (QQQ - Free Report) down 27.9%, Europe-based VGK down 34.1%, emerging markets-based (EEM - Free Report) down 28.4%, Asia-based AIA down 22.8% and all-world ACWI down 30.2%.
U.S. markets are officially in the bear market. Goldman Sachs predicted on Mar 13 that the S&P 500 could slump 20% more before bottoming out and rebounding through the rest of the year. Against this backdrop, investors must be interested in knowing how to navigate the market turbulence.
Adopting strategies from billionaire investor Warren Buffett is every investor’s dream. In the coronavirus situation too, investors can follow his suggestions about “investing in a bear market” (as published on fool.com).
"Be Greedy When Others Are Fearful"
When others are fearful and there is a steep market crash, a value buying opportunity can come up. No crash is going to stay for eternity. The U.S. economy survived the “1919 Spanish Flu epidemic, the Great Depression, World War II, 9/11, and the 2008 financial crisis,” then why not coronavirus?
Should you board the beaten-down airlines ETF U.S. Global Jets ETF JETS or American Airlines Group Inc. (AAL - Free Report) on dirt-cheap valuation? Airlines stocks belong to a favorable Zacks industry (placed at the top 31% of 250+ industries). Moreover, Warren Buffett had billion-dollar investments on the four big airlines in late-2019. This shows that Buffett was hopeful about airlines stocks just a few months ago.
The players in the industry are resorting to restructuring measures to adjust to the virus situation. U.S. airlines are on the lookout for government assistance of more than $50 billion. Trump also plans to support the airline industry “100%”, though no details are revealed yet.
Delta DAL), American Airlines and United Airlines (UAL - Free Report) — all have resorted to steep capacity reductions as global air travel has almost come to a halt. The trio are cheap too; forward PE of AAL and UAL are now somewhat more than 3x while DAL has it at 5.62x. The fund JETS has a PE of 9.51x.
Buffett also sees bank stocks as “very attractive compared to most other securities.” Banks make up big part of Berkshire Hathaway’s portfolio. SPDR S&P Bank ETF (KBE - Free Report) has been another loser amid the virus scare. So, one can invest with a long-term view as the present scenario is definitely not in favor of banks.
“Cash in King”
In recent years, high valuation of stocks has kept Buffett from making a big-ticket acquisition. Berkshire has now about $125 billion in cash and short-term investments.
BlackRock also says the same. Sergio Trigo Paz, who helps oversee the $1.6-billion BlackRock’s Emerging Markets Flexi Dynamic Bond Fund, beefed up the portfolio’s cash holdings to 20% by early February, while trimming positions in high-yield bonds.
Cash and short-dated fixed income may play a greater role in providing stabilization in a portfolio. SPDR Bloomberg Barclays 1-3 Month T-Bill ETF BIL, iShares 1-3 Year Treasury Bond ETF SHY and iShares Short Treasury Bond ETF SHV attracted about $3.72 billion, $3.07 billion and $2.02 billion in assets, respectively (read: Investors Love These ETF Areas Amid Virus-Led Bear Market).
Buffett’s “Favorite Holding Period is Forever"
A well-known Buffett quote is, "Our favorite holding period is forever." Buffett sees owning stocks as owning businesses. He takes interest in lasting companies that will grow over decades.
As markets skidded on the virus scare, Buffett warned investors not to “buy or sell” on the headlines. “Has the 10-year or 20-year outlook for American businesses changed in the last 24 or 48 hours?” Buffett asked on CNBC, as quoted on MarketWatch.
Investors can bet on SPDR Portfolio S&P 1500 Composite Stock Market ETF SPTM, First Trust Cloud Computing ETF SKYY, Health Care Select Sector SPDR ETF (XLV - Free Report) and Vanguard Dividend Appreciation ETF (VIG - Free Report) with a long-term view.
Quality Picks May Help Survive the Shock
One should bet on quality stocks and ETFs amid such acute scare. Buffett prefers economic moat investing, which refers to a business' ability to maintain competitive advantage over competitors. VanEck Vectors Morningstar Wide Moat ETF (MOAT - Free Report) can thus be given a look.
Stocks with a history of consistently growing dividends should also survive the downturn. iShares Core Dividend Growth ETF DGRO (yields 2.70% annually) makes a good pick in this respect. Products like iShares Edge MSCI USA Quality Factor ETF (QUAL - Free Report) and non-cyclical Consumer Staples Select Sector SPDR Fund (XLP - Free Report) should serve the purpose too (read: Is the Acute ETF & Stock Selloff an 'Overreaction' or Justified?).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>