Fear another stock market crash? Try investing like the UK’s Warren Buffett

Scared that markets may tumble again? Paul Summers thinks Fools could learn a lot from this Warren Buffett-inspired fund manager’s approach.

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Having recovered strongly since mid-March, markets now look to be losing some of their gusto. Whether this is just a temporary pause for breath or a sign that another crash could be around the corner is anyone’s guess. That’s why it’s important to plan for all eventualities. For me, this means adopting a strategy not dissimilar that used by fund manager Keith Ashworth-Lord — sometimes referred to as the UK’s Warren Buffett.

The UK’s Warren Buffett?

Now, let’s be clear: in terms of investment returns and net worth, there’s only one Warren Buffett. Nevertheless, Ashworth-Lord might be considered the UK’s equivalent to the Sage of Omaha for two reasons.

First, the performance of his nine-year-old, £1.3bn CFP SDL UK Buffettology Fund has been superb. Since its inception, it’s been the top-performing fund in its sector, returning 229% by the end of May. The sector average over the same period was just under 60%. 

Second, the fund uses the strategy of Business Perspective Investing, just like Buffett and his tutor Ben Graham. In other words, Ashworth-Lord picks stocks as if he were buying whole companies.

Among the things he looks for are business models that are easy to understand and where earnings are fairly predictable. High returns on capital employed are a must, as is a strong balance sheet. Management must be frank with owners and not reliant on acquisitions to grow. 

While very much a buy-and-hold investor like Buffett, Ashworth-Lord isn’t afraid to sell if the investment case changes. Such are his concerns over the impact of the pandemic, the fund now has no exposure to retail and only one leisure-related holding (Dart Group). 

Speaking of the coronavirus…

What if markets crash again?

Ashworth-Lord’s strategy doesn’t really change, even in times of crisis. 

First, he only buys if the price feels right. Put simply, the Buffett-inspired investor looks for great companies trading at far less than they are really worth. This requires patience, something quite a lot of market participants struggle with.

Notwithstanding this, Ashworth-Lord also thinks market timing is very difficult, if not impossible. Indeed, he’s gone on record as saying he was surprised by just how quickly markets deteriorated in March, how draconian the lockdown was and how swift the recovery has been. The fact that this appears to be a “liquidity-fuelled market” (that is, based on money-printing by central banks) makes him wonder if we might have another downswing. 

As no one possesses a crystal ball, however, Ashworth-Lord believes investors need to accept that they’ll never get in at the absolute bottom and sell at the absolute top.

Instead, he suggests taking advantage of pound-cost averaging by buying frequently and averaging down. This is something we routinely advocate at Fool UK too, so long as we’re not talking about debt-ridden, low-growth companies. If the business is a likely survivor of the pandemic, this strategy makes perfect sense.

Last, the UK’s Warren Buffett is no fan of rebalancing a portfolio by taking money from winners and feeding it into losing stocks or new positions. If he buys, it’s using his existing cash pile.

Always keep some powder dry, would be Ashworth-Lord’s recommendation. The fact that markets sporadically tank isn’t the problem, it’s not having the capital to take advantage when they do that hurts. 

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.

Paul Summers owns shares in CFP SDL UK Buffettology Fund. The Motley Fool UK has no position in any of the shares mentioned. 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.

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