The recent market crash may leave some investors currently wondering which UK shares to buy. The process isn’t made any easier by risks such as a second wave of coronavirus, as well as political uncertainties surrounding Brexit.
Therefore, using a tried-and-tested strategy such as that followed by Warren Buffett could be a sound move. It may help you to invest £5k, or any other amount, for the long term in high-quality businesses that have the capacity to recover from the market crash.
Business quality
At the present time, it’s unclear which UK shares will prosper in the long run. The coronavirus pandemic is, unfortunately, still present. Therefore, it’s too soon to know with any degree of confidence what its ultimate impact will be on specific industries and the wider economy. Other risks, such as Brexit, may also weigh on the financial performances of some industries in the coming months.
Therefore, it makes sense to focus your capital on high-quality businesses that have the financial means and competitive advantage to adapt to changing operating conditions. Assessing the quality of a business has long been a key tenet of Buffett’s investing strategy. In fact, he’s been willing to pay premium prices in the past for those companies he believes are worthy of a higher valuation than their peers.
Through buying UK shares that have a stronger competitive position than their rivals, as well as solid finances, you may be better able to benefit from a likely recovery after the recent stock market crash. They may offer less risk, and greater reward potential, than their index peers.
A long-term focus on UK shares
The short-term prospects for many UK shares are precarious at the present time. However, in the long run, many FTSE 100 and FTSE 250 stocks are likely to recover from the recent decline. That’s because no economic downturn has ever lasted in perpetuity. Therefore, as operating conditions improve, financial performances from a wide range of businesses could do likewise.
Buffett has always focused on the long-term prospects for his holdings. Although, in many cases, the companies he has purchased have failed to deliver high returns in the months following their purchase, he has stuck with them because, eventually, strong business performance is likely to be reflected in a rising stock price.
Therefore, while the near-term prospects for UK shares may be challenging in some cases, buying and holding strong companies for the long term could lead to high returns. The track record of the stock market shows it has delivered an annualised return in the high-single digits over recent decades.
Through using a buy-and-hold strategy, you can obtain similar results from your portfolio, as the stock market gradually recovers from its recent crash.