Warren Buffett Investment Strategy: How to Profit Amid Coronavirus

This article about Warren Buffett Investment Strategy was written by Gabriel Plat, a Financial Analyst at I Know First.

Warren Buffett Investment Strategy
Credit: AP Photo / Nati Harnik

Successful investing takes time, discipline and patience.
Price is what you pay. Value is what you get.
– Warren Buffett

Summary

  • Warren Buffett investment strategy consists of identifying undervalued stocks and holding them on the long-term;
  • The coronavirus pandemic created a good scenario to find those stocks;
  • Apple and American Express stocks can have potential to be undervalued at the moment;
  • I Know First algorithm can be a differential to have profit in this strategy.

Who Is Warren Buffett and What Is His Investment Strategy?

Saying that Warren Buffet is arguably the most successful investor ever would sound obvious for basically everyone in the world of investment. In fact, his economics and investing advice are still adopted in different strategies. But who exactly is Warren Buffett?

Buffett is one of the wealthiest people in the world. He made his fortune in the stock market and, since 1970, he has been the largest shareholder of Berkshire Hathaway, a conglomerate holding company.

The research of his investment decisions provides a better understanding of its basis and how to follow it.

The Long-Term Should Be Your Goal

To Warren Buffet, day-to-day stocks do not really matter. At all. Buffett prefers the buy-and-hold strategy, a passive strategy that avoids being influenced by short-term oscillations. This may lead to a stable portfolio and can have a better value at the stocks owned in the long-term. This strategy believes that the market will favor undervalued quality stocks over time, so there is no reason to panic because of the price variation from one day to another.

How To Find Undervalued Stocks

To Warren Buffet, some factors need to be analyzed in the company before deciding if it is a good stock to invest or not. For instance, find the return on equity (ROE) of a company can be a good measure, but it is not enough. The quality of the company can not be seen only in the past ROE but analyzing the past 10 years.

Also, the strategy considers company debt and profit margin. By observing the debt-to-equity ratio (D/E) and the division between net income and net sale, respectively, we can analyze the two factors mentioned above.

Additionally, other factors can be important. Buffett already said that he does not understand completely the mechanics of new technology companies and this impact on his decision to invest or not in the company. Companies that rely solely on commodities are also avoidable in that decision.

Finally, the most important: the company value. By analyzing all those factors, Buffett is able to identify if the company’s intrinsic value and compare to its liquidation value. If the intrinsic value is higher than the liquidation value, that is the opportunity to invest.

Which Companies Are We Talking About?

Warren Buffett Investment Strategy

Honestly, that is a million-dollar question. Since the Coronavirus pandemic, stocks all around the world of several different areas plunged. Considering Buffet’s strategy, this may be the best opportunity to find its main point: the undervalued stocks.

One of the best examples right now is Apple stock (AAPL). Since Buffet’s Berkshire Hathaway is one of Apple’s shareholders, it is fair to say that the giant tech fits in his strategy.

The Coronavirus impact in Asia impacted Apple’s supply chain and this can be seen in AAPL price over this year. The chart below indicates the loss of value of Apple’s stock in 2020.

Read More: Apple Stock News: Supply Chain Struggles and New Announcements

Warren Buffett Investment Strategy
Figure 1 – AAPL Price Movement

As said before, this strategy reward quality stocks over time. The fluctuation in the short- or mid-term would end at some point and the stock value would rise after the pandemic. If you think the stock value right now is undervalued, then it is the right time to invest in it.

Of course, not only Apple lost value in the middle of this pandemic. If we look into the publicly-traded U.S. stocks owned by Berkshire Hathaway, we can find other companies in the same situation.

Kraft Heinz stock (KHC) value dropped over 27% since January. American Airlines stock (AAL) fell 47% in the same period. America Express stock (AXP) started the year valuing $124.66 and hit almost $68 by the end of March. All of those companies have Buffet’s company as one of their shareholders and might be part of his strategy.

Figure 2 – AXP Price Movement

When Should I Invest In Those Stocks?

Again, this is not an easy question. By the Warren Buffett investment strategy, time does not really matter that much if you consider the stock to be undervalued. Even so, there are ways to improve your decision making.

I Know First has an AI-powered algorithm that can predict stock trends over time. By its forecast, it is easier to predict the stock movement and make the right decision.

Read More: How the Stock Forecast Algorithm Works

Of all packages available, I Know First provide the Warren Buffett Portfolio. Investors generally use this portfolio to take advantage of Warren Buffett’s proven investment strategy. The different time horizons offered in the package makes it easier to apply his strategy and, of course, profit.

Warren Buffett Investment Strategy
Figure 3 – Warren Buffett Package Stocks Returns Over 1 Year

In the table on the right, we can see that the algorithm predicted the correct stock movement in 8 of the 10 stocks. AAPL, one of the stocks that were correctly predicted, rose an impressive 66.55%.

Warren Buffett Investment Strategy
Figure 4 – Warren Buffett Package Stocks Returns Over 1 Year

Here we can see that not only I Know First average return was high but also higher than the S&P 500 index return on the same period.

To enhance your investment strategy at this moment, I Know First also provides a Coronavirus Stock Market forecast. We utilize our proprietary AI-powered predictive algorithm to uncover the most promising market opportunities that may arise during these extraordinary times from various market sectors, both on long and short side. This includes assets such as gold and relevant commodities, biotech companies’ stocks, pharmaceutical companies’ stocks, semiconductors, and technological sectors stocks and more.

Conclusion

The buy-and-hold strategy has been proved as one option to face the stock market. Adopted by Warren Buffett, this strategy gained popularity among investors.

In the stock market scenario as today, stocks all over the globe are losing their value and this may be the opportunity to apply the strategy. Amid all chaos, there is room to search undervalued stocks, which might be rewarded in the long-term.

To help investors when analyzing stocks, I Know First artificial intelligence can make forecasts of several stocks, making it easier for them to apply the Warren Buffett investment strategy. This daily generated forecast contains top 10 stock picks for long and short positions based on the criteria defined by Warren Buffet for his investment strategy. The forecast is delivered daily before the market opening which provide you with the competitive investment position relative to the rest of the market.


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