Legendary investor Warren Buffett has bought shares in dozens of companies over the course of his career. Many of the lessons from that experience have helped him become a better investor. I think they can do the same for me.
Here are three ways I am using Buffett’s advice to find great value UK shares to buy now for my portfolio.
Think about buying a business not a share
Buffett does not invest by looking at a share price and deciding whether it is attractive, based on a purely financial perspective. Instead, he finds what he thinks is a great business, like Apple or HP. Then, if he thinks its shares are trading at an attractive valuation, he will consider buying them.
That sounds logical. After all, nobody buys a house by figuring out how many bricks are in it and seeing if the price is cheap compared to buying bricks elsewhere. They look at the house overall. Although a share is only a small part of a company, it makes sense to me to try to find a business I think has attractive economic characteristics. It makes no sense to me to look for cheap shares in businesses I do not understand.
Value is not just about price – but price matters
Fortunately, I can think of hosts of companies that have great businesses with a strong competitive advantage and the prospect of making profits long into the future. Off the top of my head, I would think of Johnnie Walker owner Diageo, Greggs, JD Wetherspoon and Games Workshop.
But I do not own shares in all of those companies. In fact, I only own shares in one at the moment (Wetherspoon). Why is that if I think they are attractive? It is because, as Buffett says, price is what you pay but value is what you get.
I like each of those businesses, but so do many other investors. That means three of the four shares trade at what I think are high valuations. Buying shares even in a great company can turn out to be bad value if you pays too much.
So, like Buffett, I do not buy a share just because its price is cheap. Even for a company I like, I will only invest in its shares if I think they are reasonably enough priced to offer me good value.
Warren Buffett does not rush
What if other people spot the great potential in companies and push the price up? If I do not move right now, will I miss the opportunity?
Interestingly, Buffett is in no rush. His HP stake is new this year, long after the company became successful. The Apple business was on fire for years, but Buffett only started buying the shares in 2016.
Rather than rushing to buy shares right now, I am applying Buffett’s approach to finding great companies. If they are available today at an attractive price, I may add them to my portfolio. But if not, I will keep them on my watchlist and see if the price becomes more attractive in future.