According to Warren Buffett, being a great investor doesn’t need a high IQ. What matters more is patience, discipline, and focus.
Buffett’s approach to investing involves staying away from difficult, complicated companies. Instead, it involves waiting for opportunities in easy-to-understand businesses.
That’s how I plan to approach the stock market in 2023. I’m expecting a recession to weigh on share prices, but I think that should make things easier for me.
The stock market in 2022
The last 12 months have been a difficult time for investors. As interest rates have increased, share prices have come down.
More speculative stocks have been hit hardest. They’re the ones in companies that aren’t that well known by investors, but that gained popularity while rates were low.
Arcimoto is one good example. The company manufactures and leases three-wheeled electric vehicles.
Since the start of 2022, Arcimoto shares have fallen by 97%. After reaching a price of $637, they’re now back at $3.91.
Warren Buffett
This is the type of stock that Buffett tends to avoid. It’s a new enterprise with unclear prospects and a high price tag relative to the cash it generates.
In general, this has proven to be wise as the tide has turned in 2022. That’s why the Berkshire Hathaway share price has held up well compared to the S&P 500 this year.
Rather than looking for undiscovered future winners, Buffett prefers to buy shares in established companies when they’re unusually cheap. American Express is a good example.
Buffett bought shares in American Express after the company had been embroiled in a scandal in 1963. As a result, he was able to buy the stock at a price equivalent to $0.94 today.
A stock on my radar right now that looks a bit like this is Meta Platforms. The company is facing antitrust charges from the EU.
That’s been weighing on the company’s share price at the moment, but I think that the fear is overdone. That’s why I’ve been buying the stock for my portfolio.
The stock market in 2023
Beyond Meta Platforms, I think that the stock market is likely to give me some more opportunities in 2023. An imminent recession is what’s causing me to think this.
To borrow a phrase from last year, I’m expecting a recession to be transitory. In other words, I’m not expecting a permanent slowdown in corporate profitability.
My view is that earnings will have returned to growth mode by the end of 2023. That means I’m basically looking to exploit pessimism in the stock market earlier in the year.
That’s why my plan for 2023 is to stick to the basics. Buying shares in strong businesses at bargain prices should be easier for me next year than it has been recently.
On my radar at the moment are companies like InterContinental Hotels Group, Halma, and Diploma. All of these are likely to be affected by a recession, so I’ll be looking to buy these in 2023.
