Billionaire US investor Warren Buffett once said: “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
And despite market weakness, he’s been true to his word and loading up with several stocks this year. For example, he’s recently been building up a big position in Occidental Petroleum. The company carries out exploration and production activities in the US, the Middle East and North Africa.
Ignoring the market ‘noise’
However, the price of oil fell back a bit from its recent highs over the past few days. And one theory is that falling commodity prices could be signalling a weakening general economic activity ahead.
But such macro-economic considerations have not deterred Buffett from acting on his conviction about Occidental Petroleum. We can’t be certain what he sees in the business. But most of his stock purchases occur because of the presence of value.
My guess is he has identified the business as being a quality operator in its sector with a long growth runway ahead. And he probably bought the stock now because the valuation offers him a fair price. Based on most of his activity over many years, that’s the way it often goes.
And I don’t think it’s important what business Buffett has chosen to buy. The first lesson I draw from his recent actions is that he has the courage of his convictions. He’s done his research and analysis, formed an opinion, and acted on it. And that’s despite all the headlines and opinions of others.
Investing against the crowd
Indeed, it’s interesting how often Buffett has gone against the crowd during his investing career. And it’s even more interesting that he’s one of the most successful investors on the planet. But I suspect one of the out-in-the-open ‘secrets’ to his calm approach is ‘focus’. He’s used the word many times and reckons it’s an important skill to master.
It looks like Buffett has narrowed his focus to Occidental Petroleum despite all the market ‘noise’. And the need to focus is the second lesson I’d use to help me invest £500 right now.
Third, I’d aim to learn the value of having patience after buying shares in a company. Buffett reckons time is our friend if we hold the stocks of what he describes as wonderful businesses. And he’s said in the past he’s prepared to wait indefinitely for a company’s performance and potential to deliver him a decent return on his investment.
Yet even if I apply these three lessons to my investing strategy there’s still no guarantee of a positive long-term investment outcome. Indeed, all shares carry risks as well as positive potential. Nevertheless, observing Buffett in action is helpful to me and I’m using his lessons right now to help me invest better.