Warren Buffett is still someone investors want to follow. Whether the market is in a major correction or in a significant bull run, it always helps to get a feel for what Buffett is doing.
This year it was extremely important to see how the Oracle of Omaha reacted. Not only is Buffett incredibly smart and cautious, but with his resources, you can be sure that he receives tons of information before making big investment decisions.
This makes it even more important to listen to what Buffett is saying and act on it. You don’t always have to do the same thing as him; after all, with different wallet makeups, what makes sense to you may not make sense to him and vice versa.
However, it’s still important to know what he’s doing and why he’s doing it.
One of Buffett’s biggest decisions this year was to abandon his investment in all airline stocks at the start of the pandemic. Although this was criticized at the start of the initial rally, it turned out to be a top pick. So let’s see why Buffett decided to ditch airline stocks.
Warren Buffett: Avoid airline stocks
Warren Buffett quickly resold airline shares at the start of the pandemic. The reason was that Buffett hadn’t expected the industry to return to its 2019 capacity for several years.
Even this coming year, with the vaccine now starting to roll out and a significant rebound expected at that time, industry capacity is still not expected to be close to 2019.
There are still several speedbumps before the industry can fully recover, which includes international as well as domestic travel. First, the whole world will need to be vaccinated and achieve immunity. It will be crucial to restore the confidence of all travelers.
Then even after that, as sales return to 2019 levels, the long-term effects could hurt profitability. Air Canada (TSX: AC), for example, has issued both debt and equity since the start of the pandemic. So even if all sales figures and costs were to return to pre-pandemic levels, Air Canada still would not earn as much net income as it now has higher interest charges.
Moreover, with the increase in the number of shares, it would actually have to earn more total income to get the same earnings per share as before the pandemic. Warren Buffett identified that this would happen very early on, which is why he quit the industry.
So while you may have made some money in the last few weeks with a rally in Air Canada stocks, you might want to take your money now. Holding from now until a full recovery could be a much longer investment.
Buffett: Buy gold stocks
On the other hand, if you are looking for a stock to buy in these uncertain times, gold stocks are a great option. One of the main titles to consider is Barrick Gold (TSX: ABX) (NYSE: GOLD).
Barrick Gold is one of the largest gold miners in the world. Its diversified operations help reduce risk for investors and make it an ideal stock to buy to gain exposure to the price of gold. Another less risky option would be to buy a gold ETF, which would be even more diversified.
Barrick’s size and superior track record, however, makes it attractive, which is why many investors choose to buy the stock itself. While Warren Buffett buying gold stock was surprising, the fact that it was Barrick was not.
The stock has seen a slight pullback in recent months as gold prices have cooled. However, this is the perfect opportunity for investors to buy, as you can now get Barrick for even less than Buffett did this summer.
Plus, with multiple catalysts for gold to continue its rally, there might not be a better time to buy the stock.
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Silly contributor Daniel Da Costa doesn’t have a position in any of the stocks mentioned.