After a rocky few months in world stock markets, what is the best way for me to find UK shares to buy now for my portfolio? I am following some advice from legendary investor Warren Buffett. Here is how.
Ignore market noise
Buffett does not seem to get very affected by seesaws in the market. He is able to keep his emotions in check when he sees prices move around sharply.
That is because Buffett is not a trader but a long-term investor. He is trying to buy parts of businesses he thinks have great prospects for the years ahead. So short-term moves in their share prices do not bother him, as he does not think they affect the underlying value of a company.
But one benefit of a market moving around is that it can sometimes throw up attractive buying opportunities in companies Buffett likes that now trade at a more attractive price than before. For example, shares in Unilever have fallen 12% over the past year.
In fact, they now trade for less than Buffett bid for the whole company five years ago. Some risks are more obvious now than then – cost inflation is putting pressure on profit margins, for example. But I think the business is the same attractive one Buffett wanted to buy, with premium brands such as Dove giving it pricing power. But a falling share price gives me the chance to buy it for my portfolio at a more attractive price than before.
Always look for a moat
Warren Buffett never buys shares just because their price looks cheap.
Instead, he considers their value. Price is one part of that. But value also involves considering how strong a company’s business prospects are. That is why the Sage of Omaha looks for businesses that have what he calls a moat. By that, he means a competitive advantage that can help them keep rivals at bay – just like the moat around a medieval castle repelled invaders.
So, even if markets tumble, I still do not buy shares just because their share prices look cheap. Instead, I search for companies with a moat. For example, this month I have bought shares in Victrex. The price looks attractive to me after Victrex shares fell 22% in a year. But I also like the fact the company is a leader in the polymer industry with its own proprietary product technology. That gives the business a Buffett-style moat that could help support future profits.
How I follow Warren Buffett
I am not just blindly following Buffett’s share purchases. In fact, at the moment I do not own any shares held by Buffett.
But what I am doing is applying his approach when I search for UK shares to buy now for my portfolio. That way, I can choose shares inside my own circle of competence, while benefitting from Buffett’s wisdom.