Here’s why I use the Warren Buffett approach to try to beat the stock market
I reckon the Warren Buffett approach to stock market investing might be more important than ever, in these times of fear and uncertainty. The post Here’s why I use the Warren Buffett approach to try to beat the stock market appeared first on The Motley Fool UK.
I’ve been sitting back and reading Warren Buffett‘s 2023 letter to shareholders.
This one seems, perhaps, even more thoughtful than most recent ones. Maybe it’s to do with the passing of Charlie Munger, who died in November.
Whatever it is, this letter does a great job of summing up Buffett’s wisdom. And one thing seems especially apt today.
Beat the market?
There’s been an idea for years that, if all company data is available for all to see at the same time, it should be impossible to beat the market consistently.
It’s called the efficient… something or other. I try not to take too much notice of big words from ivory tower academics.
Warren Buffett himself seems to be the one who tests, and disproves, that nonsense. He’s been soundly beating the market since he took control of Berkshire Hathaway in 1965. And he was armed with the same information everyone else had.
But doesn’t the vastly quicker, minute-by-minute, stream of data that bombards us today make it harder and harder to beat the market?
The rational investor
I think it’s exactly the opposite. I’d say today’s shorter attention spans are making people less rational, if anything.
What evidence do I have? I offer:
Occasionally, markets and/or the economy will cause stocks and bonds of some large and fundamentally good businesses to be strikingly mispriced. […] If you believe that American investors are now more stable than in the past, think back to September 2008. Speed of communication and the wonders of technology facilitate instant worldwide paralysis.
Warren Buffett, letter to shareholders, 2023
As far as I can see, the past decade has been littered with vastly mispriced stocks.
Strikingly mispriced
Now, I don’t want to bang on about Lloyds Banking Group (LSE: LLOY) again. Oh, hang on, yes I do. I love banging on about Lloyds.
Do I think Lloyds shares are mispriced? I sure do.
I mean, forecasts put the price-to-earnings (P/E) ratio at nine, dropping to only around six by 2026. And we’re looking at a 5.4% dividend yield, which could rise to 7% by 2026.
Oh, there’s a big share buyback going on too. And, as the UK’s biggest mortgage lender, it’s surely in a long-term winning market, isn’t it?
We don’t all agree
The thing is, a lot of big investors clearly don’t agree with me. And there is risk with Lloyds, for sure.
The mortgage business that I see as a long-term cash cow could look like a short-term liability to another investor. And they’d be right too.
How we decide is based, in part, on how far we look ahead.
Today, I’m more convinced than ever that more and more people are looking at share prices with short-term eyes. Get into, or out of, the latest craze. And then on to next week’s hot thing.
Private investors
So no, the days of private investors being able to beat the market are not over. And I don’t think they ever will be. Too many people always want to get ahead quickly, and they make the mistakes that leave the door open for long-term investors.
With some hard work, and a bit of luck, we should have a better chance thanks to the lessons we learn from Warren Buffett.
And Charlie Munger. Buffett owes a lot to Charlie. I think we all do.
The post Here’s why I use the Warren Buffett approach to try to beat the stock market appeared first on The Motley Fool UK.
Pound coins for sale — 31 pence?
This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
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Alan Oscroft has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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