Warren Buffett’s simple but effective strategy could allow an investor to unearth the best UK shares to buy now. His focus on buying companies with competitive advantages while they face challenging near-term outlooks may provide scope for capital appreciation over the long run.
Many FTSE 100 and FTSE 250 shares currently trade at low prices even after the recent stock market rally, As such, now could be the right time for a 40-year-old investor (or anyone with a long-term time horizon) to follow the Oracle of Omaha’s advice when investing money in the stock market.
Warren Buffett’s focus on investing money in undervalued shares
A good starting point when seeking to find the best UK shares to buy now could be the quality of a company. Warren Buffett has historically aimed to buy high-quality businesses when they trade at low prices. Therefore, focusing on their recent investor updates and annual reports could be a sound move. It may provide an investor with the means to assess their financial strength, competitive advantage and prospects for earnings growth in the coming years.
Buying such companies when they trade at low prices can provide scope for capital growth over the long run. However, normally risks are required to a company’s short-term outlook in order for them to have attractive valuations relative to other shares. For example, they may face challenging operating conditions because of coronavirus disruption, or Brexit may be weighing on their near-term prospects.
The best UK shares to buy now
Through buying high-quality companies at low prices, Warren Buffett has been able to build a vast portfolio over the years. Adopting the same strategy to unearth the best UK shares to buy now may still be possible, since many FTSE 100 and FTSE 250 shares are trading at low prices.
For example, banks such as Barclays and Lloyds trade at extremely low prices because of a weak economic outlook. This may mean they have the potential to deliver share price growth as the economy’s performance improves. Similarly, tobacco stocks such as British American Tobacco and consumer goods companies such as Diageo have lower valuations than their long-term averages. This may indicate that they offer long-term capital appreciation potential as their investment gradually impacts on profitability.
Taking a long-term view
Clearly, Warren Buffett has built his wealth over a period spanning many decades. The best UK shares to buy now may take many years to deliver on their potential. Therefore, it is important to take a long-term view of any investment made – especially with risk levels continuing to be high across a range of sectors.
However, through buying high-quality shares at low prices, it is possible to generate high returns that have a positive impact on an investor’s portfolio, and financial situation, over the coming years.
Peter Stephens owns shares of Barclays, British American Tobacco, Diageo, and Lloyds Banking Group. The Motley Fool UK has recommended Barclays, Diageo, and Lloyds Banking Group. 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.