Warren Buffett is one of the most respected investors in the world, with shares in his company Berkshire Hathaway reaching eye-watering highs.
But the road to this success was not an easy one. Over the years, Buffett’s managed to navigate the volatile waters of global markets, escaping some of the worst tragedies of the past century. So when the man provides advice, it pays to listen!
While some feel his style’s outdated and imperfect for today’s world, certain advice never ages. With fear and uncertainty gripping markets worldwide, I’m taking solace in his ageless wisdom.
Stay disciplined
Every investor should have a strategy they stick to, no matter the market. This helps avoid making rash decisions.
I’ve occasionally overpaid for shares but the worst mistake I’ve made is selling too soon. Now I always focus on the fundamentals and do careful analysis before buying OR selling.
Avoid market timing
This ties in with the above point. Trying to catch high and low prices seldom works. Many crashing stocks keep falling, while some at record highs keep climbing.
In the long run, investing in high-quality businesses and holding through highs and lows usually pays off. To paraphrase Rudyard Kipling, keep your head when all about you are losing theirs.
If there’s one bit of advice that successful investors share, it’s to remain rational while others panic.
Be contrarian
Arguably, Buffett’s most famous quote is: “Be fearful when others are greedy and greedy when others are fearful.”
According to the fear and greed index, fear currently drives the market. That’s a step down from a month ago when it was greed, and a big change from this time last year, when it was extreme greed.
That suggests now may be a good time for contrarian investors to greedily hunt for undervalued stocks.
A potential example?
One stock that could fit that criteria is Occidental Petroleum (NYSE:OXY). Berkshire Hathaway recently bought 8.9m more shares in the company after offloading stock in Apple.
Despite enjoying strong growth post-Covid, the stock’s tumbled 20% this year. The price is now only 12.6 times earnings per share (EPS), well below the US market average of 18.3.
This suggests it’s undervalued but that alone doesn’t mean the price will recover. Oil is a volatile industry, with supply issues causing big dips and ramping up costs. Any interruption to the supply chain could send the share price tumbling.
A growing industry
To accurately value oil and gas shares, it’s important to consider where the industry’s headed. Despite a rise in green energy, oil demand’s expected to continue growing. The US Energy Information Administration (EIA) expects global oil production to grow by 1.6m barrels a day in 2025.
Where does Occidental fit in? According to its Q3 results, Occidental averages 1.4m barrels of oil equivalent a day (Mboed), up from around 1.2m last year. It also announced a $4bn debt reduction and pre-tax income of $304m, exceeding guidance.
All things considered, it appears to be an undervalued stock that’s performing well in a high-demand industry. I’m not surprised Buffett likes it!
Unfortunately, I don’t have the spare capital to invest in Occidental today. However, I think it’s worth considering for investors looking to diversify into energy.
