Billionaire investor Warren Buffett says his favourite stock holding period is forever, and he turns his nose up at attempts to time the market.
But is there anything in his wisdom that might help our investments when the next UK bull market comes along? I wouldn’t be in this if I didn’t think there was going to be one.
I’ve been searching among Warren Buffett’s well-known investing quotes to see if I can find any tips and pointers that could be of particular value for when the market turns upwards again.
Moats
“A truly great business must have an enduring moat that protects excellent Returns on Invested Capital.“
Buffett considers competitive advantages to be key in his investments. I reckon companies that have them will probably have stood up best under the pandemic crisis.
Their businesses may well have suffered, and their share prices might be in the dumps. But tough times sort out the healthy companies from the unhealthy ones. And I think competitive advantages will figure strongly among the companies that come out flying if and when a bull market takes hold.
What might these moats consist of? They could be pricing advantages, technical infrastructure, strong brands… all sorts of things.
Quality
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.“
I see so many downtrodden UK shares that really look cheap these days. In fact, I think I could probably put on a blindfold and stick a pin in a list of FTSE 100 constituents, and come up with a likely winner every time.
There are so many wonderfully-priced companies around now, that it’s tempting to focus on those with the lowest valuations. Some have started on their recoveries, but more must surely be set to join the party?
No, Buffett’s words suggest we’d be making a mistake concentrating on price, when we should focus on quality.
Results
“Do not take yearly results too seriously. Instead, focus on four or five-year averages.”
If a bull market really does start to develop, we’re sure to have pundits poring over every set of results. And not just full-year results. No, they’ll be carefully inspecting half-year results, and quarterly updates too.
And they’ll be looking for key indicators that a recovery has happened, that a company is on the up. I’ve done it myself, but it doesn’t mean a lot. For any company, one good or bad year is unlikely to make any long-term difference.
10 years
“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
I think this one is probably the most valuable of all. But what if the bull market doesn’t last 10 years? How does this advice help us pick the best bull market stocks, if we’re supposed to ignore the market?
Well, that’s the point. The best stocks to buy for a bull market are also the best to buy for a bear market. Or for any other kind of market. We should be buying into companies, not into markets!
