Since the second half of February, stock markets have been tanking. The City is now concerned about a potential deep, global economic slump, which some analysts fear could be worse than the 2008–09 financial crisis. Hence the recent stampede for the exits. But on the other side of the equation we’ve legendary investors who don’t worry too much about market crashes in general. For example, Warren Buffett invests for the long term and does not panic sell when markets crater.
Impressive returns
Since the late 1950s, Buffett and his long-time partner Charlie Munger have transformed Berkshire Hathaway from a struggling textile manufacturer to a holding company with a market capitalisation greater than $550bn.
It now has the most expensive share price of any company in history. In 1964, each Class A share was just shy of $20. Today it’s upwards of $268,000 (no, that’s not a misprint).
Put another way, Buffett has been making, on average, 20% a year. An investor who invested £1,000 in Berkshire Hathaway 50 years ago would now have over £9m!
Buffett firmly believes that stocks outperform all other asset classes over time. However, he’s not one to buy shares in a company at any price. Indeed, the Oracle of Omaha is regarded as the king of value investing.
Earlier in the year, Buffett released his annual shareholder letter. Although Buffett is bullish on stocks long term, he said “that rosy prediction comes with a warning: Anything can happen to stock prices tomorrow”.
Although Buffett invests for the long haul, he regards the stock market as unpredictable. And within days of his warning in February, markets globally did indeed crash. For example, year-to-date, the FTSE 100 index is down about 28%.
However he doesn’t think there’s any need for worry for the individual who doesn’t use borrowed money and who can control their emotions. To him, if you’re not thinking of owning the stock you’ve just bought for at least a decade, don’t even think of owning it for a day.
Therefore, falling prices don’t make him nervous because he has seen equity markets recover time after time. Instead, he patiently waits.
One of my favourite Warren Buffett quotes is “opportunities come infrequently. When it rains gold, put out the bucket, not the thimble”. In other words, he’d recommend retail investors to buy stocks as prices decline.
What Buffett invests in
Buffett’s preferred investments are
- Large-cap stocks
- Financials, including banks and insurance companies
- Consumer brands
- Stocks that pay dividends
For the most part, Buffett invests in US-based stocks. Yet the FTSE 100 offers plenty of choices in which he’d have possibly considered investing had he been UK-focused. And if I were to take Buffett’s approach, I’d be now willing to invest in many of these solid companies, especially as their valuations have fallen.
One point I’d need to remind our readers that on 31 March, UK banking groups scrapped dividends and share buybacks for the rest of the year. Therefore, I am not including any banking shares in my list at this point.
So here’s a shortlist for you to analyse further
- Aviva – dividend yield 12.1%
- BP – dividend yield 9.4%
- British American Tobacco – dividend yield 7.1%
- Coca-Cola HBC AG – dividend yield 3.2%
- GlaxoSmithKline – dividend yield 5.7%
- Legal & General Group – dividend yield 9.9%
- National Grid – dividend yield 5.5%
- Tesco – dividend yield 3.1%
- Unilever – dividend yield 3.6%