Warren Buffett’s a prime example of an investor who knows how to navigate volatile market conditions. Since the 1960s, he’s led his investment firm, Berkshire Hathaway, through numerous market crashes and countless corrections. And subsequently, Berkshire’s investment portfolio has yielded an average annualised return just shy of 20% a year – double the US stock market’s average of 10%.
For the most part, UK shares have been fairly resilient over the last few weeks. But across the pond, it’s been a very different story. The S&P 500‘s tumbled more than 9% since the middle of February, with some of the most popular picks like Nvidia and Tesla (NASDAQ:TSLA) seemingly crashing by 20% and 35% respectively.
The return to volatility comes as investor fears surrounding US tariffs and stubborn inflation become increasingly elevated. And subsequently, the post-US-election gains in the stock market have seemingly evaporated. So with that in mind, what advice does the ‘Oracle of Omaha’ have to offer investors in navigating these choppy waters?
Focus on the business, not the stock
Stock prices are driven by short-term investor sentiment. But in the long run, it’s the company behind the stock that ultimately drives returns for shareholders. And as a long-term oriented investor, Buffett always remains focused on what the business is up to.
Specifically, Buffett looks for top-notch enterprises with clear competitive advantages that form a protective moat against rivals. Having an upper edge in the form of a reputable brand or industry-leading margins and efficiencies can make an enormous difference in the long run. And when companies with these winning traits are sold off by panicking investors, Buffett begins to prepare for a shopping spree.
Is Tesla a buy to consider right now?
Applying Buffett’s quality and long-term approach to Tesla, is the electric vehicle (EV) manufacturer a worthwhile investment right now?
Looking at the latest results, there are some encouraging figures to get excited about. Despite what the share price indicates, Tesla’s brought down its average cost of goods sold per vehicle to under $35,000. That’s subsequently translated into a 27.4% expansion of free cash flow, giving management the flexibility to invest aggressively in artificial intelligence (AI) and other technological innovations.
That certainly sounds like a high-quality enterprise. However, Tesla also has its fair share of problems that Buffett definitely wouldn’t overlook.
For example, the polarising political statements from CEO Elon Musk have recently triggered a number of protests outside Tesla showrooms, some of which have even turned violent. At the same time, vehicle registrations for Teslas in Germany, Australia, and China all appear to be moving in the wrong direction despite a steady increase in EV adoption. All of this suggests the company may be having a bit of a PR crisis among customers, creating opportunities for rival manufacturers.
Buffett doesn’t appear interested in buying Tesla shares right now. And neither am I. However, it’s not the only US stock to have been sold off recently. And there could be terrific investment opportunities just waiting to be uncovered as prices continue to wobble.
