FTSE Investors! Here’s what Warren Buffett does when markets crash

Warren Buffett takes a methodical approach to investing that FTSE investors should pay attention to.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

On 22 February, legendary investor Warren Buffett released his annual letter to shareholders of Berkshire Hathaway, his firm that has the most expensive share price of any company in history. Each Class A share costs upwards of $320,000. Many regard his letter as one of most important documents published each year for investors.

Although we don’t need to become copycat investors, I believe most of us can benefit from Buffett’s wisdom. Therefore, today I’d like to discuss some of the highlights of this latest letter, especially as they may relate to the recent volatility in broader markets globally.

Key takeaways

Buffett firmly believes that stocks outperform all other asset classes over the long term, especially if interest rates and corporate tax rates remain low. However, he’s not one to buy shares in a company at any price. Indeed, the Oracle of Omaha is regarded as the king of value investing.

He proposes that people should only invest in companies that they both understand and believe will offer long-term value.

Although Buffett is bullish on stocks long term, he said “that rosy prediction comes with a warning: Anything can happen to stock prices tomorrow”.

Within days of this warning, markets globally have sure become volatile and so many darlings of the stock market have started falling like knives.

But he doesn’t think there’s any need for worry for the individual who doesn’t use borrowed money and who can control his or her emotions. To him, if you’re not thinking of owning the stock you’ve just bought for at least 10 years, don’t even think of owning it for 10 minutes. 

As he takes a long-term approach, falling prices don’t make him nervous because he has seen equity markets recover time after time. Instead he sits tight and patiently waits.

According to Berkshire Hathaway’s most recent quarterly filing, the groups holds a record $128bn in cash and US Treasury bills. In other words, management wants to be in a liquid position to buy into a company if the chance arises. Similarly, retail investors would benefit from having some cash saved to buy into quality shares, especially when prices take a hit.

Preferred industries

When we look at Buffett’s investments over time, we note that he prefers

  • Big or even mega-cap stocks
  • Financials, including banks and insurance companies, followed by large consumer brands
  • Stocks that pay dividends

Although his main holdings are US-based stocks, the FTSE 100 offers plenty of choices in industries in which he’d have possibly considered investing had he been UK-focused. And if I were to take Buffett’s approach, I would do further due diligence on the following  large-cap shares. I’d be willing to invest in them in March, especially if there’s any further dip in their share prices. 

  • Aviva – dividend yield 7.9%
  • BHP Group – dividend yield 7.1%
  • GlaxoSmithKline – dividend yield 4.9%
  • Legal & General Group – dividend yield 5.8%
  • Lloyds Banking Group – dividend yield 6.5%
  • Standard Life Aberdeen – dividend yield 7.2%
  • WPP – dividend yield 6.6%

Finally, Buffett sees value in buying into S&P 500 exchange-traded funds (ETFs). By definition, such an ETF matches the market’s performance. Similarly, a low-cost FTSE 100 or FTSE 250 tracker fund might be appropriate for many UK-based investors.

Average dividend yields for the FTSE 100 and the FTSE 250 are about 4.5% and 2.8% respectively. And this would be on top of any potential return from the indices themselves.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

tezcang has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »