Could value investing to buy shares like Warren Buffett help you beat inflation?

Are you concerned about inflation eating away at your investments? Could value investing be the antidote? George Sweeney takes a look.

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You’re probably sick and tired of hearing about inflation. But, at the same time, you might also be finding yourself looking everywhere for the best way to overcome this hurdle. So, could value investing be the answer to protecting and growing your portfolio?

In this article, I give you a brief overview of how value investing works. I explain why it can be useful in an inflationary environment and how to find and buy cheap shares. Keep reading for an insight into value investments.

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What is value investing and how does it work?

This style of investing was made popular by Warren Buffett (amongst others). It mostly relies on finding undervalued stocks and shares to invest in.

Sometimes, you might see people refer to value investments as ‘cheap’. This is because the basic idea is that the current share price doesn’t represent the true value of that stock.

Although any share can be considered ‘good value’ at times, value investing is more of an overall ethos. Often, it’s lauded as the ‘proper’ way to invest. However, value investors can occasionally be somewhat snobby with strict principles that don’t always apply to booming sectors like tech.

Why might value investing be a good strategy when there’s high inflation?

You might think that growth stocks are better in periods of inflation because, well, they’re meant to grow! And, the whole worry about investing during high inflation is that you want returns to outpace inflation so that your money isn’t losing value.

However, inflation has a slightly strange relationship with the price of shares, especially for growth stocks. This is because these stocks are basically priced on future returns. But, if inflation is high, when you look years ahead, this devalues how much a company’s returns will be in real terms.

So, this is where value investing comes into play. Many stocks and shares that fall into the ‘value’ category tend to be businesses that are making cash. More importantly, they’re making cash today.

When inflation is running hot, it can make more sense to back firms making a profit right now. This can be a better strategy than putting your faith in shares that simply hold the promise of growth and profit. Money invested in growth stocks will be worth less if inflation stays high.

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What do the experts think about the current investing landscape?

According to Capital.com, Peter Schiff, CEO and chief economist at Euro Pacific Capital, had this to say about investor sentiment right now: “I think 2021 represented the actual peak of the speculative mania where investors threw all reason and caution to the wind and just piled into anything that was going on.

“But now, I think we’re going to see a return to a more traditional value, where the stock pickers are going to start to make money, not the indexers.

“Those people who are actually doing their homework and who are finding value in businesses and buying them cheap and getting a good yield. I think that’s where the money is going to be flowing out for many, many years.”

How do you find good value shares?

Don’t worry if you’re not an expert stock picker. There are some simple ways that you can find great value shares to invest in without spending every waking hour poring over financial statements.

Here are three ways to find cheap shares:

  1. Get some inspiration from The Motley Fool’s Share Advisor service
  2. Research investment trusts that focus on value investing
  3. Take a look at the holdings of Berkshire Hathaway (basically Warren Buffett’s portfolio), or just buy their shares

Where can you start investing in cheap stocks and shares?

Whether you find your own shares or get some guidance when it comes to value investing, you’re going to need a share dealing account if you want to actually invest.

Seeing as you’re looking for cheap shares and investments, it’s also worth setting yourself up with a cheap share dealing account. There’s no point in spending time finding good value investments and then paying high fees to buy them.

Just remember that no matter how much research you do, there are still risks. When shares are cheap, this doesn’t guarantee that you’ll see better returns. So, always remain sensible and diversify where possible.

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