The investor Warren Buffett famously said that investors ought to be greedy when others are fearful – and fearful when others are greedy. With the FTSE 100 index of blue-chip UK shares repeatedly hitting new all-time highs this year, some investors may look greedy. But there is also some palpable fear in markets right now, too.
So, as an investor, does it make sense to be fearful, greedy — or both — right now?
Not always black and white
The answer, as far as I can see, is: perhaps both.
In some ways, I see reasons to be fearful.
While a lot of focus is on the US market, some UK shares also look overvalued to me. I am concerned about risks including a weak economic outlook and ongoing geopolitical tensions in Europe and elsewhere. Maybe the highs we have seen in the FTSE 100 this year are symptoms of an increasingly frothy market.
On the other hand, the index still looks cheap by comparison to its US counterpart. Some of the individual shares in it also look potentially cheap to me.
Hunting for bargains
Should I then be ‘greedy’, as Buffett puts it, when it comes to what I see as cheap UK shares?
I think so – and there is a reason why.
Like Buffett, I aim to invest in great businesses at attractive prices. That can mean that, whatever the overall stock market may be doing at any given moment, I am considering the investment case for individual shares within it.
Even when the market may look pricey, there can still be bargains. After all, the stock market is ultimately a market of individual shares.
Caution, as always
Still, such an approach has risks.
This year, I have been investing in B&M European Value Retail. I reckoned B&M’s share price had fallen further than the underlying business performance merited.
That belief has been shaken with this week’s news that B&M had wrongly classified some freight costs, leading it to warn on profits.
While that wrong classification has now been identified and corrected, it has damaged my confidence in B&M’s financial controls. Time will tell whether what I saw as a potential bargain UK share in fact turns out that way.
Whatever way it does turn out, the episode underlines for me once more as an investor that, whether being fearful or greedy, one always ought to consider risks.
Hunting for bargains
Still, my search goes on.
One of the UK shares I have been buying this year continues to look unloved by many other investors. FTSE 100 distiller and brewer Diageo (LSE: DGE) has tumbled 28% so far this year.
That compares to a 14% gain for the blue-chip index during that period. The Diageo share price, in other words, has woefully under-performed lately.
There are reasons for that.
Premium spirit demand globally is suffering from the economic weakness I mentioned above. The longer term demand outlook is uncertain, due to increasing abstention among younger consumers.
But Diageo remains massively profitable. It has raised its dividend per share annually for decades.
With its stable of premium brands, unique properties and a global distribution system second to none, I believe Diageo still has a bright future. I plan to hold my shares for the long term.
