Even though many UK shares now trade at cheap prices following the stock market crash, it can be difficult to decide which ones to buy.
As such, following successful investors such as Warren Buffett could be a sound move. His strategy of purchasing companies with wide economic moats at fair prices has generated high returns over a long period of time.
Through using a similar approach, you may find it easier to unearth the stocks in the FTSE 100 and FTSE 250 that can offer the greatest capital return potential.
Economic moats
With the economy’s prospects being weak after the recent stock market crash, buying UK shares that have wide economic moats could be a logical approach. For example, they may have a competitive advantage over their sector peers due to their unique products, strong brand loyalty or more efficient business models that result in higher profitability.
Such companies may be better placed to survive the economic challenges that are now likely ahead in the coming months. They may also be better able to gain market share at the expense of their weaker sector peers, and to adapt their business models to suit changing consumer trends brought about by the recent lockdown.
Clearly, assessing a company’s economic moat is very subjective. The task may be made even more difficult by the recent stock market crash that has caused high volatility across many sectors. However, Warren Buffett has used the approach with great success in the past, and it has allowed him to identify the most appealing shares within a range of sectors that have gone on to produce impressive returns.
Cheap UK shares after a market crash
The best UK shares to buy today may not necessarily be the cheapest stocks available after the market crash. Certainly, some high-quality businesses now offer exceptionally wide margins of safety that could lead to strong capital returns in the coming years. However, investors may find equally attractive opportunities among UK shares that are not necessarily the cheapest on offer at the present time.
In some cases, it may be worth paying more for a much better-quality business. Although this may mean that it commands a higher valuation than some of its sector peers, its prospects may be far brighter. As such, its risk/reward opportunity may be more attractive, and it could have the capacity to produce more resilient and greater returns over the long run.
Warren Buffett has always focused on price and quality when it comes to determining which stocks to buy. Using this approach after the market crash, in terms of being willing to buy UK shares that are not necessarily the cheapest around, could allow you to purchase the best stocks in the FTSE 100 and FTSE 250 that deliver the highest returns in the coming years.
