Warren Buffett’s approach to investing could be a sound means to determine which UK shares to buy ahead of a likely stock market rally. After all, he has delivered market-beating returns on a consistent basis over many decades.
As such, focusing on high-quality businesses when they trade at cheap prices could be a sound move. Similarly, holding them for the long run in what could be a volatile 2021 may prove to be a logical approach when seeking to build a large ISA portfolio.
Using Warren Buffett’s approach to buy UK shares today
Despite the recent stock market recovery, a number of UK shares trade at cheap prices. Warren Buffett has always sought to buy stocks for less than they are worth. Therefore, a number of buying opportunities may still be available.
However, a plan to purchase cheap shares in an ISA may be insufficient to benefit from a long-term stock market recovery. After all, some stocks may be cheap for good reason. They may have weak balance sheets or lack a competitive advantage over their peers. As such, it is important to determine whether a cheap share has the financial means and market position to deliver improving financial performance in the coming years. If it does, it may prove to be undervalued at the present time.
This twin focus on price and quality is a hallmark of Warren Buffett’s investing strategy. Using a similar approach to UK shares may lead to a higher return that boosts the value of an investor’s ISA over the coming years.
Holding for a stock market recovery
Of course, Warren Buffett’s approach can mean that it will take many years for undervalued UK shares to deliver high returns. In some years, he has underperformed the wider stock market. However, this has been offset by years of significant outperformance. This means that having a long-term timeframe is imperative when seeking to build a large ISA portfolio.
Encouragingly, the FTSE 100 and FTSE 250 have both experienced a stock market recovery after even their very worst declines. For example, they doubled in value after the global financial crisis in 2009. Therefore, even if 2021 brings yet more economic and political uncertainty after a challenging 2020, holding undervalued shares for the long run could lead to impressive returns.
Clearly, not all investors will generate the same wealth as Warren Buffett has achieved during his lifetime. But a simple strategy that seeks to buy and hold the best UK shares at cheap prices for the long run could lead to a surprisingly large ISA portfolio. With many FTSE 100 and FTSE 250 shares trading at attractive levels today, now could be the right time for an investor to start the process of improving their financial prospects.