Buying UK shares after the 2020 stock market crash could prove to be a worthwhile long-term move. Indexes such as the FTSE 100 and FTSE 250 have a long track record of delivering recoveries after their declines. Meanwhile, investors such as Warren Buffett have previously used market declines to generate high returns in a subsequent rally.
As such, by following Warren Buffett’s views on buying high-quality companies at distressed prices and holding for the long term, it is possible to generate strong capital returns in a long-term stock market recovery.
Buying high-quality UK shares at cheap prices
Many UK shares currently trade at cheap prices after the stock market crash. However, not all of them are likely to make sound investments. For example, investor sentiment may be weak towards businesses that have weak balance sheets or that lack a competitive advantage versus their peers. Such companies may deliver disappointing financial and share price performances even in a stock market recovery.
Similarly, some high-quality companies may trade at prices that do not leave investors with a margin of safety. Their stock prices may have rebounded following the market crash so that they trade for what they are worth. Or even for a premium to their intrinsic value. In such scenarios, there may be a lack of scope for capital growth over the long run.
As such, following Warren Buffett’s ideas on investing money in high-quality UK shares at cheap prices could be a sound move. In other words, a combination of a high-quality business and a cheap share price can be a buying signal. Although such companies may be relatively hard to find among UK shares at the present time, they may prove to be among the strongest performers in a stock market recovery.
Warren Buffett’s long-term approach to investing money
Even though history suggests that a stock market recovery is likely to take place after the 2020 crash, UK shares may yet experience further challenges in the short run. For example, risks such as the coronavirus pandemic and Brexit are likely to remain in place over the coming months. They may cause investor sentiment to weaken after its recent improvement.
Therefore, following Warren Buffett’s lead in taking a long-term approach to investing money could be a sound move. As mentioned, the FTSE 100 and FTSE 250 have always previously recovered from their declines to post new record highs. While it may take some time for this outcome to take place following the 2020 stock market crash, it seems likely to occur in the coming years.
Through buying today’s high-quality UK shares at cheap prices, and holding them for many years, it may be possible to follow Warren Buffett and beat the stock market over the long run.
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.