Who knows how the Brexit saga will end. Yesterday, Boris Johnson and his EU counterparts agreed to extend trade talks beyond the original deadline, suggesting that both sides would do whatever it takes to get some kind of deal over the line. This is despite the prime minister already going on record that the UK should prepare to move to World Trade Organisation-style arrangement come January.
As unsettling as all this might be for an already-skittish market, I don’t think it should bother Foolish UK investors all that much. Indeed, in my view, now is precisely the time to follow the guiding principles of the world’s greatest stock picker, Warren Buffett.
Buffett would buy the (Brexit) fear
Investors might assume that Buffett’s wisdom has little relevance as far as Brexit is concerned. After all, the ‘Sage of Omaha’ has invested most of his time, energy, and money into US businesses.
I disagree. Buffett’s philosophy is universal because all investors endure the relentless internal battle between greed and fear, no matter where in the world they might be, or what the current ‘crisis’ is.
Buffett’s recommendation that we should “be greedy when others are fearful” is therefore pertinent when it comes to Brexit. There’s certainly plenty for businesses to be scared about right now. As well as being prevented from recruiting staff from the continent, many will worry about raising prices on products they sell, tariffs and delays at ports.
I see this is an opportunity for UK investors. The fact both sides will emerge as losers from a disorderly Brexit must be borne in mind. As such, I think it’s important to keep buying stocks, even if their prices remain volatile going into 2021.
But what should investors be buying? Again, I’d follow Buffett’s lead.
Look for quality
He concentrates on finding quality stocks. For him, these are companies that have some sort of ‘moat’ — a competitive advantage that rivals find tough to erode. On top of this, Buffett looks for consistently rising profit margins and low debt.
But not paying too much for stocks is also important. Right now, I suspect the UK stock market still offers significant value, particularly relative to Buffett’s own US market. As a result, I’d be looking for domestically-focused firms that have little reliance on the EU. Alternatively, I’d buy FTSE 100 stocks that, thanks to having operations across the world, derive only a modest amount of their revenue and profits from across the Channel.
One reason why Warren Buffett is so wealthy is down to the fact he sets out to hold stocks “forever”. In other words, he doesn’t get shaken out of great businesses for political or economic reasons. He regards himself as a business owner, not a share price speculator.
Here at Fool UK, we adopt the same mentality. It’s not pleasant to see a portfolio temporarily fall in value. However, history shows the trajectory of share prices over the long term is most definitely up.
Knowing that even a global pandemic couldn’t stop the ascent of share prices for long gives me confidence that buying stocks at the height of the Brexit crisis will also turn out well. I suspect those adopting Buffett’s way of thinking will be richly rewarded… in time.