Warren Buffett is among the most successful investors of all time. As of late 2022, he had a net worth of over $100bn. And he has turned Berkshire Hathaway into one of the most valuable companies in the world. It’s no wonder that many investors want to replicate his investment strategy.
So with the stock market pushing downwards in March following the Silicon Valley Bank fiasco, I’m looking to Buffett for advice.
Buffett’s strategy
The great man’s a value investor. This is a philosophy that involves purchasing stocks at a discount, versus their intrinsic or book value. Value investors, including me, often refer to this discount as a security’s margin of safety.
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The so-called ‘Oracle of Omaha’ focuses on buying meaningfully undervalued stocks. So while share prices might have fallen, it doesn’t necessarily mean they’re undervalued.
Finding undervalued stocks requires research, but it’s true to say that these stocks can be easier to find in a bear market environment. An unpredicted stock market correction also provides great conditions.
When share prices fall
“Bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price“. That’s one of the many things Buffett has said about the opportunities a stock market correction presents.
He says he’s actually happy when his favourite stocks dip in value, because it allows him to buy more shares at a lower price. Buffett once noted that “net buyers” of stocks benefit when the stock market goes down.
So as share prices tanked in March, I’ve been doing just that. I liked financial stocks before the correction, and now many are trading 20% cheaper than a month ago. Barclays could now be 75% undervalued, according to a discounted cash flow calculation.
After all, Buffett tells us not to follow the crowd and to be fearful when others are greedy. So with the market gripped with fear about unrealised bond losses in the financial sector in March, now seems like a great time to buy.
Buffett’s picks
Buffett’s portfolio is full of household names. He invests in companies many of us have heard of, most of which are blue-chip stocks such as Apple, Coca-Cola and Occidental.
While the American focuses on value, he says he’d rather pay a fair price for great company than a great price for a fair company. That’s something we should all pay attention to. We need to be confident in the stocks we’re investing in.
Buffett doesn’t really invest in the UK, but I do. So I’m taking his advice, but applying it to my own market. He actually tells investors to stick to what they know best. For me, that’s UK stocks.
With opportunities in financial stocks, that’s where I’m focusing. I’m buying more stocks like Barclays, Legal & General and HSBC.
These companies have seen billions wiped off their share prices in recent weeks, but the market is starting to realise there was an overreaction to Silicon Valley Bank’s collapse.
