The Warren Buffett Stocks I Buy to Protect Against the Market Crash

Warren Buffett fans taking his picture

Warren Buffett has been investing for over seven decades. It has navigated nearly every market environment during this time, including more than one major stock market crash. By his own admission, his portfolio has lost more than 50% in value on more than one occasion.

However, despite experiencing several market sell-offs, Buffett never changed his investment strategy. It’s something I try to copy for my own portfolio.

Rather than trying to time the market and predict the next stock market crash, which is nearly impossible, I focus on finding the best companies in the market and stick with those companies for decades.

With that in mind, here are three Buffett stocks I bought to protect my portfolio from a market downturn.

Stock market crash protection

The first company is Buffett’s conglomerate, Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B). This company has several qualities that suggest it is the perfect vehicle to own to protect against uncertainty.

First, the company has one of the strongest balance sheets of all fortune 500 business. It has almost no debt and over $140 billion in cash. In addition to these resources, the company has over $300 billion in liquid securities, stocks and shares that it can sell at any time to realize cash.

Not that the company needs cash anytime soon. Berkshire is built around a few core businesses, which are cash cows. From its railroad unit to its utility division and insurance arm, the establishment has some of the largest and strongest businesses in America.

Warren Buffett’s reputation

The company’s size also gives it a strong competitive advantage over its peers. Thanks to Buffett’s reputation, Berkshire has a choice of business. It can buy smaller companies and make deals with larger companies that would be impossible with other partners.

For example, during the financial crisis, Buffett moved quickly to provide tens of billions of dollars in capital to struggling businesses and demand a double-digit interest rate for the lien.

As such, not only is Berkshire strong enough to survive a stock market crash, but it also has the resources to take advantage of the situation.

Unfortunately, the company’s association with Buffett is also a downside. The billionaire is not getting any younger and, aged 91, he may not be at the helm any longer. When he leaves, the company will lose its visionary CEO and may begin to struggle for leadership.

Payment Giant

Given the risk described above, I diversified away from Berkshire, buying other stocks that I think the “Oracle of Omaha” would acquire for his portfolio or that he already owns.

One of these companies is the payment processor Visa (NYSE:V). Buffett owns $2 billion of this group in his Berkshire portfolio, and I also own the stocks.

Visa manages the global payment network for Visa cards. Every day it processes billions of dollars worth of transactions, and that number is only growing. The company has reported an increase in transactions throughout the pandemic as consumers turn away from cash.

Unfortunately, the company has also suffered a decline in cross-border transactions, which are more lucrative. This drop hit its overall growth rate.

Investors have also expressed concern over the rise of other digital payments and cryptocurrencies. Some analysts believe these payment methods could begin to erode Visa’s market position. This is probably the biggest challenge the company is currently facing. This is something I will be monitoring as we move forward.

Nonetheless, I think this company has all the qualities I want to see in a company that can protect my portfolio from a stock market crash. In the event of a crash, it seems unlikely that there will be a significant drop in card transactions. Therefore, Visa should continue to generate cash. Management can then use this cash to acquire smaller peers to drive growth. The company could also return some of its profits to investors with dividends and share buybacks.

Former action of Warren Buffett

The final stock I would buy for my wallet is the retailer Tesco (LSE: TSCO). Buffett currently has no interest in this business, but he has owned the stock in the past. He sold the job after the company’s accounting scandal in 2014.

Tesco is currently facing a number of headwinds. These include rising wages and supply chain costs. The organization is trying to cut costs to maintain margins, but if supply chain issues persist, I believe these challenges could impact the overall profitability of the business.

Nevertheless, as the largest food and drink retailer in the UK, the company has a captive market. Consumers will always need to eat and drink, suggesting that there will always be a market for its products. As such, it seems unlikely that its earnings will decline substantially in the event of a stock market crash.

Shares of the company may come under pressure, but fundamentally the company should stay on track. This suggests that the stock should reflect growth in the underlying business over the coming decades, not short-term market fundamentals.

In addition to these qualities, the stock also supports a good dividend yield of around 4%. Compared to Visa and Berkshire Hathaway, this level of income is incredibly attractive to me. That’s why, although Buffett is no longer a fan of the company, I would buy Tesco to provide me with protection against stock market crashes.

The post office The Warren Buffett Stocks I Buy to Protect Against the Market Crash appeared first on The Motley Fool United Kingdom.

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Rupert Hargreaves owns Berkshire Hathaway (B shares) and Visa. The Motley Fool UK recommended Tesco. The opinions expressed on the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we give in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of ideas makes us better investors.

Motley Fool United Kingdom 2022

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