Markets are uncertain at the moment. UK stocks have seen some big gains and losses over the last week as investors have reacted to the invasion of Ukraine.
My approach to this terrible situation has been to do almost nothing with my share portfolio. But a recent sale means I have some cash in my top-rated Stocks and Shares ISA that I’m keen to put to work. To help me pick wisely, I’m following these tips from Warren Buffett.
Is it risky to buy now?
UK share prices have been all over the place in recent weeks. Many were already falling in January. I think there’s a good chance we’ll see further declines over the coming months.
However, I’m not trying to call the bottom of the market. What I’m doing is looking for individual UK stocks which I think offer good value.
Paying the right price is something Buffett has often talked about. He has two tips for the current situation. The first is that investors should always look for a “margin of safety”, aiming to buy a company for less than it’s worth.
His second piece of advice is that “it’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price”.
Buying shares always carries the risk of future losses. But if I pick well, buying UK stocks today should help me to lock in future passive income and capital gains. Staying in cash means I’ll miss out on both of these.
What I’m buying
Buffett says it’s important for investors to recognise their “circle of competence”. He notes that “the important thing is not how big the circle is. The important thing is staying inside the circle”.
This certainly rings true for me. I’m always careful never to dive into a new stock just because it’s popular, or moving fast. When I’ve broken this rule, I’ve usually lost money.
Given the uncertain market conditions today, I think Buffett’s ideas are more important than ever. To help manage my risk, I’m focusing on companies I’m already familiar with. Often, this means buying more shares in businesses I already own.
Alongside this, I’m also looking for one or two new stocks to replace companies that have recently left my portfolio. Although these will be new stocks for me, I’m focusing my search on companies and sectors that I’m already familiar with and have followed for some time.
UK stocks: a buyer’s market?
Over the next week or two, I’m planning to spend most of the cash that’s built up in my ISA account. Will this be a wise decision? You’ll have to ask me in a few years.
As Buffett once said: “I buy on the assumption that they could close the market the next day and not reopen it for five years.”
I’m not looking for short-term share price gains. Instead, I’m hoping to buy into good companies that I can continue to own for many years into the future.
