The rising prices of Bitcoin and gold may persuade some investors to ignore Warren Buffett’s strategy of buying undervalued shares for the long run. After all, the virtual currency and precious metal are extremely popular at the present time. And they could even move higher over the coming months.
However, they also come with risks that could derail their progress. As such, a simple buy-and-hold strategy that focuses on UK shares trading at cheap prices may provide greater scope for capital growth in the long run.
Warren Buffett’s views on Bitcoin and gold
Warren Buffett is known to have a negative viewpoint of gold and Bitcoin. Although both assets have risen sharply in price in recent weeks, they may fail to deliver similarly fast-paced growth in the long run.
Gold, for example, is now trading close to a record high. Investors may have factored-in the prospect of a weak global economic performance in the first half of the year. Furthermore, the rollout of vaccines may mean that the prospects for the economy improve significantly over the coming months. This may cause many investors to pivot from gold to undervalued shares. And that may lead to a disappointing relative performance from the precious metal.
Similarly, Warren Buffett does not invest in Bitcoin. One of the potential threats to its performance is the fact that it has no fundamentals. This means that investors cannot gauge whether it offers good value for money, or is overvalued. It also has regulatory risks and may lack the necessary infrastructure to replace traditional currencies. It all means its future prospects could be less attractive than many investors currently believe.
Investing in undervalued UK shares
While Warren Buffett is negative about gold and Bitcoin, his views on buying undervalued shares have been consistent over many years. His wealth has been built on a simple strategy that seeks to buy high-quality companies when they face short-term challenges that lead to low share prices. Buying such companies can produce higher returns than the wider market, since an investor is buying a high-quality business at a discount to its intrinsic value.
At the present time, a number of FTSE 350 shares appear to be undervalued. Sectors such as energy, financial services and media are facing difficult operating conditions that are holding back their performances. This may remain the status quo in the next few months, of course. But an economic recovery seems likely long term. This could lead to a stronger operating environment for such businesses that allows them to command higher share prices.
As such, now could be the right time to follow Warren Buffett’s advice. There appear to be many opportunities to capitalise on recent stock market falls to produce high returns in the coming years that may be ahead of those offered by Bitcoin or gold.
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.