Over the last half century, billionaire investor Warren Buffett has come out with some brilliant advice. He literally has a great quote for every aspect of investing.
One that’s worth highlighting in the current market environment is this classic: “I will tell you how to become rich. Be fearful when others are greedy. Be greedy when others are fearful.”
Here, he’s saying that the best time to buy stocks is when others are selling.
A winning strategy
Amid all the geopolitical uncertainty investing has felt challenging, as a lot of investors have been selling. Here in the UK, the blue-chip FTSE 100 index fell into ‘correction’ territory at one point last month (meaning a drop of 10% from its recent highs).
This is the kind of environment Buffett loves. Throughout his career, he’s often stepped up to buy during periods of market weakness and it has made him a lot of money.
Real-world trades
For example, he initially bought Coca-Cola stock in 1988 (via his investment company Berkshire Hathaway), just after the 1987 market crash. Like many other stocks, it sold off heavily during the crash, even though its business was still in solid shape and its market dominance was unquestionable.
This trade made him an absolute fortune. Today, Berkshire’s position in Coke is worth around $30bn.
More recently, Berkshire Hathaway bought back a lot of its own stock in the first quarter of 2020 (when markets tanked due to the pandemic). When others were panicking, he saw value on offer.
This trade worked out very well too. Over the last six years, Berkshire Hathaway Class A shares have risen about 170%.
Buffett’s focus
It’s worth pointing out that Buffett – who recently stepped down as CEO of Berkshire Hathaway – was very selective when choosing stocks to invest in. He didn’t buy any old stock just because it was down.
His strategy was based around investing in high-quality businesses. Ultimately, he was looking for companies with strong competitive advantages (or wide economic moats), high levels of profitability, solid balance sheets, and good track records.
A stock to look at today
The good news is that there are plenty of Buffett-type stocks that look appealing today, both in the UK and abroad. One UK-listed example is Coca-Cola HBC (LSE: CCH), which has recently fallen more than 10%.
This company – which is a bottling company for Coca-Cola – ticks a lot of Buffett boxes. Not only is it both very profitable and financially sound, but it also has a great track record in terms of shareholder returns (including an excellent dividend growth track record).
In terms of the valuation, it looks very reasonable to me after the recent pullback. Currently, the price-to-earnings (P/E) ratio’s about 16.
Zooming in on the dividend yield, it’s about 3%. So there’s a decent level of income on offer.
Of course, there are risks here. Geopolitical instability, changing consumer trends, and supply chain costs (eg transportation) are some to think about.
Taking a five-year view though, I see a lot of potential so I think it’s worth considering. Note that analysts at Jefferies have a 5,000p price target – that’s about 20% above the current share price.
