Warren Buffett Stock Picks in a Recession
Investing your hard earned money should be a serious undertaking. If you want to follow the best investor in the world and invest like Warren Buffett, you need to be disciplined and take the same approach as the Oracle of Omaha.
It is always amazing that people would treat their investment dollars as little more than gambling on the stock market. Investing on a company based on a tip is not what is considered doing your due diligence. In fact you’re probably better off investing in index funds. Index funds track the market and have very low management expense ratios so the fees are not eating away at your return. This is what Warren Buffett suggests if you’re not ready to do the research work to actively manage your investment portfolio. However, if you are willing read countless annual reports for fundamental analysis on the correct valuations, you can expect significantly higher than market returns.
Warren Buffett preaches on buying businesses that have distinct competitive advantages with brand associations. In the Warren Buffett portfolio, you’ll see stock picks that exemplify these traits. With companies like Coca Cola and Wrigley’s, and Kraft, each name is synonymous with the type of goods it produces. This type of branding with product and company association gives companies a leg up over competitors. To chip away at this dominance, it would require huge advertising dollars over years and consumers would still retain brand loyalties.
In this period of the 2008 recession, share prices on premium companies have never looked so attractive. One of the most basic principles of stock investing is to buy low and sell high. This template to riches seems simple enough but it is one that is not consistently heeded. Obviously, people don’t intentionally try to buy overpriced stock shares. However, this is what happens most of the time. As Warren Buffett so eloquently put it, “Price is what you pay. Value is what you get.” Hence, if one looks closely, there are many stocks currently on sale with better value than what their depressed share prices would indicate.
The question might arise of when these share prices will go up so you can resell at a profit. Again, referring to the strategy of how to invest like Warren Buffett, our mentor proclaims that the holding period is forever. I do not think this is meant to be literal as Buffett himself has sold his position in companies like Petro China. He’s also selling his shares in his holding company Berkshire Hathaway to give the proceeds to the Bill and Melinda Gates Foundation. However, what Buffett does mean is that when you buy shares of a company, you should be in the mindset of a long term owner might. Another famous quote of his is to “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
The success of Warren Buffett as an investor gives us the confidence to invest in these troubling financial times. The important thing to remember is not to be concerned about market turbulence but to realize a buying opportunity when it arises. The ability to think long term is the key to having great Warren Buffett stock picks.
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