Stock market crash: I'd follow Warren Buffett and buy good-value shares to make a million
The stock market crash has prompted many to hunt for cheap shares. But Warren Buffett – arguably the world’s greatest investor – is on record as saying: “Buying cheap businesses is foolish.”
Indeed, he stopped buying cheap businesses almost 60 years ago. And he moved away from the so-called ‘cigar-butt’ style of investing that focused on ‘cheap’ and ignored ‘quality’.
Hunting for good value in the stock market crash
These days, Warren Buffett doesn’t muddle up ’good value’ with ‘cheap’. And he was very clear about that in his 1989 letter to Berkshire Hathaway shareholders. However, it’s true that he started off investing in purely cheap businesses. But his thinking started to evolve as long ago as 1965.
Berkshire Hathaway itself was a ‘cheap’ investment that went wrong. He bought the failing textile business because the indicators made it look cheap on the numbers. But the entire sector was in decline and no amount of reinvestment, cost-saving or efficiency improvements could save it.
Buffett reckons by the time he’d bought Berkshire Hathaway, he was becoming aware that the strategy of buying cheap was problematic. He said in that 1989 shareholder letter: “Unless you are a liquidator, that kind of approach to buying businesses is foolish.” Indeed, buying Berkshire Hathaway marked the end of his original approach to investment based on buying cheap.
The only way he managed to save his entire investment from going down the tubes was to reinvest Berkshire Hathaway’s cash flow into better, unrelated businesses and other stocks. He ...
More on: uk.finance.yahoo.com