Here’s how I’m following Warren Buffett to capitalise on market volatility

Our writer explains how following legendary investor Warren Buffett and his advice has helped her shape her investment approach recently.

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Early in my investing journey (I can’t admit how many years ago or else I’d be giving up my age) I would read up on many famous institutional investors. Warren Buffett always stood out to me. So I followed him, his teachings, sayings, wins, losses, mistakes, and anything else I could learn along the way.

Today, like everyone, I find myself facing market volatility. One of his sayings echoes in my mind, and is shaping my investing approach.

Doing as Warren Buffett says

The Sage of Omaha once said it was wise for investors “to be fearful when others are greedy and to be greedy only when others are fearful”.

So what does that actually mean, you might be wondering? I reckon he’s saying that when some investors are greedy, the price of a stock can increase, potentially making it a bad investment if it were to crash. This can happen during a bull run.

On the flip side, when others are less optimistic, a good value investment opportunity could appear that I should perhaps be greedy about and snap up. This can often happen during a bear run, like now, caused by volatility.

How I’m applying this lesson to my approach

Following Warren Buffett and his lesson, I’m looking for cheap shares that may have fallen foul of soaring inflation, rising interest rates, as well as the current unfortunate geopolitical tensions. I reckon these stocks can provide consistent returns during times of volatility, or soar once the current headwinds ease and we head towards greener pastures.

Applying Warren Buffett’s approach, here’s a stock I like the look of.

Insurance giant

Aviva (LSE: AV.) is one of the largest insurance businesses in the UK. It also provides a range of savings and investment products and has international reach with a presence in Europe and Canada.

As I write, Aviva shares are down 5% over a 12-month period. Trading for 406p currently, at this time last year they were trading for 433p.

Aviva could see falling demand for its non-essential products hindering its shorter-term performance. However, as one of the premier insurance businesses in the UK, it possesses the market position and profile to navigate current issues, in my opinion. One of its core products is car insurance, which is a legal requirement in the UK. Its market dominance should help maintain performance and payouts.

Moving on, Aviva shares look great value for money to me right now. As Warren Buffett taught me, valuation is crucial at this time. A price-to-earnings ratio of 10 looks good. This is especially the case when I consider that the FTSE 100 index average is 14.

Finally, Aviva’s passive income opportunity looks attractive. Volatility could lead to dividends being cut or cancelled as they are never guaranteed. However, I can see it’s well covered by 1.9 times earnings. A dividend yield of 7.7% is much higher than the FTSE 100 index average of 3.9%.

To conclude, I’ve taken stock of the lesson Warren Buffett provided. I’ve decided to look for quality businesses that would boost my holdings. The next time I have some spare cash to invest, I’ll be buying Aviva shares.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Sumayya Mansoor has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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