Investing legend Warren Buffett has weathered many crises in his career. With a large cash pile, some people wondered what he would do amidst this year’s market chaos.
As in the dotcom crash, Buffett has been criticized for inaction. But his steady approach has been proven time and again. Here are some lessons I think private investors in UK shares can take from watching Buffett, this year and over his long investing history.
Invest like Warren Buffett
First, don’t panic. Buffett is a long-term investor who avoids chasing market news. Instead, he suggests investing in stocks that one could happily hold for a lifetime. I think that way about a number of popular UK shares. For example, consumer goods giant Unilever has characteristics Buffett looks for in a business, such as an economic moat. He has been a long-term investor in its American competitor Procter & Gamble.
Secondly, Warren Buffett has been hunting for value in sectors he thinks look cheap, not just searching for individual stocks. That explains his company Berkshire Hathaway’s purchase of stakes in various Japanese trading houses this year. Similarly, a UK sector that looks cheap to me is tobacco. British American Tobacco and Imperial Brands both offer juicy yields. The sector has started to rally in the past several months and while prices are still well off their year highs, I think now is the time to act.
UK share picks using the Buffett approach
One of the keys to Buffett’s success is investing in companies that are easy to understand and operate in predictable markets. That explains his holdings in companies such as confectionery makers and pharma firms. I like GlaxoSmithKline for the same reasons. The UK pharma company is well-regarded, has a collection of successful brands and continues to develop new products. Its shares are not far off their year lows. I regard them as a bargain at the current price.
Warren Buffett is a financial expert. During the last crisis he made a fortune spotting ways to invest in financial companies others had marked down. The same thing is happening today and I see an opportunity to invest in UK shares of reputable banks such as Lloyds and Natwest. With dividends expected to resume in 2021, I think there is hidden value in both names. I am considering both shares myself to buy and hold for the recovery.
Buffett’s principles uncover some UK share opportunities
Buffett has long expressed admiration for companies that are not capital-intensive. That is one thing I like about the advertising agency model in general. While WPP has had a rough couple of years, it shows signs of having found its feet again. I think it merits more investigation as I expect it to benefit from any broad-based recovery in advertising.
Finally, Warren Buffett often invests in large infrastructure providers such as railway networks. They have a lot of pricing power, with high barriers to entry. The way the UK rail industry is structured is different, but some of the same characteristics are in evidence. That is one reason I like Go-Ahead. The company has both train and bus operations. They have been marked down due to the pandemic. But most of the company’s revenue comes from contracts that aren’t reliant on passenger demand.
christopherruane owns shares of British American Tobacco and Imperial Brands. The Motley Fool UK owns shares of and has recommended Berkshire Hathaway (B shares). The Motley Fool UK has recommended GlaxoSmithKline, Imperial Brands, Lloyds Banking Group, and Unilever and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short December 2020 $210 calls on Berkshire Hathaway (B shares). 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.