Look no further than 2020 for evidence that the long-term trend of the market is up. Despite an unprecedented global pandemic, it appears as though the S&P 500 will miraculously end this year up in the mid-teens.
Nevertheless, we shouldn’t forget we’ve had two massive downturns in just the past two years, which can be awfully scary if you’re not prepared. One thing’s for sure — we’ll get another. It may be in 2021; it may be further out. But another big downturn will most certainly happen at some point over the next five years.
After this year’s big gains, some investors may be looking to lock in some profits and preserve capital, especially those in or near retirement. Nevertheless, stocks still seem like the best place for long-term savings, given that bonds yield next to nothing and most asset classes remain somewhat highly priced.
The solution? Position your portfolio defensively, in companies that can weather a big storm or even capitalize on the next recession.
With high-flying IPO stocks trading at nosebleed valuations and many “reopening” stocks already pricing in a recovery, here are three rock-solid defensive stocks you can confidently hold through the next downturn.
Berkshire Hathaway
One of the best ways to protect your net worth is to throw your money in with the most practical, risk-off investor of all time: Warren Buffett. The Oracle of Omaha’s conglomerate Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) has actually lagged the overall stock market for the past one-, five-, and 10-year periods.
Still, this may be a function of the growth-obsessed market we’re currently in, with investors paying very high prices for young companies with exciting potential. In comparison, Buffett’s Berkshire may seem downright old-fashioned.
Yet that’s overlooking the topic of risk. As Buffett once said in his 2001 letter to shareholders, “You only find out who is swimming naked when the tide goes out.”
Buffett and his partners have built the current Berkshire into a collection of businesses with highly defensive characteristics. After all, insurance doesn’t fluctuate with economic cycles but with the random frequency of disasters and claims.
Another huge business at Berkshire is its Berkshire Hathaway Energy unit, which is a huge utility and energy business that covers the U.S., Canada, and Great Britain, and which is also highly defensive. Another major “utility-like” Berkshire business is Burlington Northern railroad. All of these business units remained profitable during the downturn of 2020, with Berkshire Hathaway Energy even increasing profits.
Then, of course, comes Berkshire’s…
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