According to CNBC, Warren Buffett could be back to his best after he underperformed the market for the last three years. It seems that value investing has come back into favour….
…. And that could benefit Buffett whose patient approach to investing means that he prepared to buy undervalued shares and wait – no matter how long – for their values to be outed.
Over the years, Buffett has made sizeable bets on banks that include Bank of America, Wells Fargo and U.S. Bancorp. Those counters delivered negative returns in 2018.
But they are starting to attract the attention of the market, given their more attractive dividend yields and cheaper valuations, at a time when valuations elsewhere are looking stretched.
We need to remember that there are two main types of investors in the market….
…. There are those who are prepared to admit that they don’t know from one day to the next, or even from one month to the next, whether share prices could rise or fall….
…. Then we have those who don’t know that they don’t know from one day to the next whether share prices could be higher or lower. But they still like to give the impression that they do!
I fall squarely into the first camp. I have no idea what the stock market is likely to do in the short term. But I do know when shares look cheap. That should always be our guiding light when we invest.
Sometimes we may have to wait weeks on end, and at other times we may be forced to wait months for the cheapness to be recognised by the market.
Consequently, this approach to investing requires a lot of patience. But if we choose our value shares carefully, namely, those that pay decent dividends, then the waiting can be made a lot more palatable. There is nothing quite like the sound of dividend cheques hitting our bank accounts.
This is what Buffett meant when he said that investing is about working out the yield on an asset over the lifetime of the asset. It should form the basis of all our investing decisions….
….if we can’t value a share, then we shoud think twice before investing in it.
None of the information in this article can be constituted as financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. Disclosure: David Kuo does not own shares in any of the companies mentioned.