Write off Warren Buffett at your peril. While most of us have been left watching our portfolios bleed in 2022, the nonagenarian has once again provided evidence why he’s one of the best in the business.
Today, I’m looking at why I’ll be continuing to listen to the ‘Sage of Omaha‘ in 2023.
Buy quality, avoid fads
As I type this, shares in Berkshire Hathaway — Buffett’s holding company — are up almost 2% year-to-date. At face value, that looks pretty poor.
However, we need to put this in context. The S&P 500 index is down over 20%. If we look elsewhere, the difference is even starker. Bitcoin is down over 60%. Non-fungible tokens (NFTs)? Let’s not bother going there.
One reason behind this is that Buffett only invests in quality stocks. These tend to be companies that have competitive advantages over their peers and/or are able to keep generating sales again and again, regardless of the economic climate. Think Coca-Cola, Apple, or Kraft Heinz.
I think this is worth bearing in mind in 2023. While those stocks that have suffered the most can sometimes be those that bounce hardest, I’d rather have the majority of my cash in a bunch of slow-and-steady wealth compounders.
Ditch the crystal ball
If life were kind, some obliging soul would ring a bell when markets peak and bottom. Sadly, this will never happen. Not that this has ever held back the master investor from across the pond.
Buffett has always regarded himself as a business owner. And, like any good business owner, he knows it makes sense to go hunting when there’s a sale.
But there’s a vital thing to understand about all this. Buffett doesn’t know for how long the sale will last. None of us do. Next year could prove just as tricky for investors, regardless of where in the world they are.
Fortunately, having a crystal ball isn’t necessary for building wealth over the long term. Buffett has repeatedly said that it’s “far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” A wonderful company is far more likely to grow his (and my) money over time.
This is why I’m not ruminating over the red in my portfolio. Instead, I’m building a list of brilliant UK stocks to buy as soon as cash becomes available.
Stick to my knitting
There’s an important caveat to building my wishlist. Again, this links in with the Warren Buffett method.
Buffett has long stuck with the idea that he invests only within his circle of competence. Put simply, he doesn’t buy anything he doesn’t understand. It’s a simple idea and one that has helped him become a multi-billionaire.
This is not to say that he refuses to move with the times and learn anything new. Quite the opposite. He famously spends the majority of his days just reading.
But if Buffet’s not completely convinced by something, he doesn’t buy it. This is regardless of how much money he could potentially make. Otherwise, he knows he’d struggle to resist selling it, possibly at a big loss, when markets head south.
With so many UK stocks looking cheap as we enter 2023, recognising the limits to my own knowledge is more important than ever.
The post 3 ways I’ll be using the Warren Buffett method in 2023 appeared first on The Motley Fool UK.
Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Apple. 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.
Motley Fool UK 2022