Warren Buffett is among the most successful investors of all time. During his time as chairman and CEO of Berkshire Hathaway, he has amassed a fortune worth over $100bn. So it’s no surprise that many investors hang on his every word.
Today, I’m taking a closer look at Buffett’s recent comments about his current concerns, and explore three tips for investing like the man himself.
Buffett’s worries
Buffett was recently asked about Berkshire Hathaway’s trajectory amid current economic headwinds, with the interviewer noting challenges from banking failures to rising interest rates.
He responded: “At 92, I’ve got other things to worry about … I worry about the nuclear threat. I worry about a pandemic in the future, all kinds of [things].”
“I never go to bed worried about Berkshire and how we’ll handle a thing,” he added.
So what does this tell us? Well, it’s another example of Buffett’s positivity — he has a well-documented history of optimism.
In 2017, a data scientist performed a sentiment analysis on decades of Buffett’s annual letters to Berkshire’s shareholders. The scientist suggested the investor’s updates had a surplus of positivity.
Does it mean we shouldn’t worry about banking failures and rising interest rates? Maybe. Well, I’m not worrying about the former. Rising interest rates are still a concern for me though.
Tip 1: Margin of safety
The ‘Oracle of Omaha’ is a value investor. This means he invests in companies that are meaningfully undervalued and tends to hold them for the long run.
Finding undervalued shares isn’t always easy and it does require us to do our research. Essentially, we’re looking for companies where the share price indicates a discount versus its book or intrinsic value. Buffett is known to look for a margin of safety of up to 50%.
One way we can develop our own valuation of a stock is by undertaking a discounted cash flow calculation — or using an online calculator.
Tip 2: Investing in quality
We also know that Buffett tends to focus on blue-chip stocks. If fact, he once said he’d rather pay a fair price for great company than a great price for a fair company.
So if we want to invest like Buffett, it may pay to focus on top-quality companies, including household names. We know the American likes national champions such as Apple, Coca-Cola and, recently, Occidental.
Tip 3: Buying when stocks fall
Buffett says he’s actually happier when share prices fall. That’s because he says it gives him another chance to buy more of the companies he loves at lower prices.
“Bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price,” the legendary investor once said.
So maybe I should be keeping my powder dry for the next correction? It might not be the worst idea. But it’s also about taking opportunities. I was pretty gungho during the March correction. After all, Buffett once said that “net buyers” of stocks benefit when the stock market goes down.
