It's no secret that inflation has been one of investors' primary concerns on the ASX share market over the past year or two. After lying dormant for more than a decade, inflation rates around the world took off during 2022. This inflation, along with the rising interest rates that it has prompted, has caused many investors to recalibrate their investing strategies. But what does Warren Buffett think about investing in 2023?

Warren Buffett is one of the greatest investors of all time. His truly astonishing near-60-year career as the CEO and chair of Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B) has resulted in the shareholders of Berkshire enjoying astronomical share price returns.

As our chief investment officer Scott Phillips covered earlier his week, Buffett has managed to engineer an average gain for Berkshire shareholders of 19.8% per annum over the past 58 years. In cumulative terms, that works out to be a gain of 3,787,464%.

So this is a man who knows how to navigate all forms of economic weather. And has become eye-watering rich in the process.

But what can Buffett teach us about how to invest in 2023?

Buffett's advice to investors in 2023

Well, he has just released his latest letter to the shareholders of Berkshire Hathaway – a great place to start. Every year, Buffett pens an expansive letter to his fellow shareholders. This is typically jam-packed with insightful commentary on the investing world. As well as wisdom on how to think and invest prudently.

In his latest letter, Buffett said this on worrying about economic forecasts:

Charlie [Munger] and I… firmly believe that near-term economic and market forecasts are worse than useless. Worse than useless. Our job is to manage Berkshire's operations and finances in a manner that will achieve an acceptable result over time and that will preserve the company's unmatched staying power when financial panics or severe worldwide recessions occur.

So focus on the big picture, Buffett is saying between the lines.

But how does one invest going forward into 2023? Well, here's some more Buffett wisdom on navigating an uncertain future:

In 58 years of Berkshire management, most of my capital-allocation decisions have been no better than so-so. In some cases, also, bad moves by me have been rescued by very large doses of luck…

Our satisfactory results have been the product of about a dozen truly good decisions – that would be about one every five years – and a sometimes-forgotten advantage that favors long-term investors such as Berkshire.

The lesson for investors: The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders. And, yes, it helps to start early and live into your 90s as well.

Buffett points out that when he bought US$1.3 billion worth of Coca-Cola Company (NYSE: KO) shares in 1994, Berkshire received US$75 million worth of dividend payments. By 2022, the annual income stream from these Coke shares had increased to US$704 million.

As Buffett would put it, this 'flower' has been able to ratchet up its dividends significantly. That's despite the Asian financial crisis, the dot-com bust, the global financial crisis, the pandemic, and now high inflation and rising rates.

Thus, Buffett is saying that if you find real top-tier shares, you won't have to worry about inflation, or anything else.

The post Forget inflation! Warren Buffett urges investors to focus on the big picture appeared first on The Motley Fool Australia.

Warren Buffett released his eagerly anticipated letter to shareholders at the weekend and, as always, it offered up some great advice to investors.

But before we get to that, let's just take a quick look at the performance of Buffett's Berkshire Hathaway (NYSE:BRK.A) business.

The letter shows that 2022 was another successful year for the Oracle of Omaha. Although the book value of Berkshire Hathaway's shares rose by a modest 4% over the 12 months, this was materially better than the return of the S&P 500 index (including dividends), which was negative 18.1%.

That's an annual outperformance of 22.1% for the year, which is business as usual for Buffett and Berkshire Hathaway. Since 1965, Berkshire Hathaway's book value per share has increased by an average of 19.8% per annum, which is double the S&P 500 index's return of 9.9%.

To put that into context, a single $500 investment into Berkshire Hathaway in 1965 would now be worth $14.8 million. Whereas that same investment in the S&P 500 would be worth a touch under $110,000. What a difference!

So, what is the key to generating Buffett returns? One of the keys is starting early.

'The weeds wither away in significance as the flowers bloom'

Compounding is your best friend when you're investing, and the earlier you start, the more your friend can help you. Combine that with finding a few winning ASX shares, and you're on your way to growing your wealth.

In his latest letter, Buffett spoke about the difference great investments can have on a portfolio. He opined:

In August 1994 – yes, 1994 – Berkshire completed its seven-year purchase of the 400 million shares of Coca-Cola we now own. The total cost was $1.3 billion – then a very meaningful sum at Berkshire. The cash dividend we received from Coke in 1994 was $75 million. By 2022, the dividend had increased to $704 million. Growth occurred every year, just as certain as birthdays. All Charlie and I were required to do was cash Coke's quarterly dividend checks. We expect that those checks are highly likely to grow. […] These dividend gains, though pleasing, are far from spectacular. But they bring with them important gains in stock prices. At yearend, our Coke investment was valued at $25 billion.

Assume, for a moment, I had made a similarly-sized investment mistake in the 1990s, one that flat-lined and simply retained its $1.3 billion value in 2022. (An example would be a high-grade 30-year bond.) That disappointing investment would now represent an insignificant 0.3% of Berkshire's net worth and would be delivering to us an unchanged $80 million or so of annual income.

The lesson for investors: The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders. And, yes, it helps to start early and live into your 90s as well.

The post Beginner investor? Warren Buffett says start early! appeared first on The Motley Fool Australia.

When it comes to generating a passive income from ASX shares, investors could learn a lot from Warren Buffett.

The Oracle of Omaha receives huge pay checks from his investments each year and there's nothing to stop you from doing the same.

Passive income the Buffett way

Warren Buffett has a penchant for making buy and hold investments in high quality companies with positive long term outlooks that are trading at fair prices and pay sustainable dividends.

A prime example of this is Buffett's long term investment in Coca-Cola Co, which comprises approximately 400 million shares.

In 2022, his Berkshire Hathaway business received a whopping US$704 million in dividend income from Coca-Cola Co.

But what makes this particularly impressive is that these dividends come from an original investment of US$1.3 billion.

This means the Buffett earned more than half his original investment back in dividends last year.

And if you include the many dividends that have been paid since he bought his shares in the late 1980s, Buffett has received approximately US$10 billion from Coca-Cola Co's shares alone.

That's almost seven times his original investment and you can bet that there's plenty more to come.

But don't worry if you don't have US$1.3 billion down the back of the sofa to invest! Smaller investments would still have been very rewarding.

For example, had you invested a more modest $10,000 at the same time as Warren Buffett, you would have received $5,400 in dividends last year. You would also have received almost $70,000 in dividends in total during your investment period. All from sitting patiently on a single $10,000 investment!

What about ASX shares?

While we may not have Coca-Cola on the Australian share market (anymore), there are plenty of ASX shares that have characteristics that Buffett looks for when making investments.

A few for investors to look closely at include energy infrastructure company APA Group (ASX: APA), drinks company Endeavour Group Ltd (ASX: EDV), industrial property company Goodman Group (ASX: GMG), and wine giant Treasury Wine Estates Ltd (ASX: TWE).

The post How to generate passive income the Warren Buffett way with ASX shares appeared first on The Motley Fool Australia.

Most investors know of the legendary Warren Buffett. Although Buffett is now well into his 90s, the performance of his company Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B) continues to go from strength to strength. As does Buffett's net worth. At current estimates, this is now sitting at US$107 billion and counting.

So it goes without saying that this is a person we should all be taking lessons from on how to invest.

I certainly am. And I'll be using Buffett's wisdom to try and buy ASX shares at deep discounts.

One of Buffett's fundamental principles of investing is that price and value aren't the same things. Just because the share market is telling us that Commonwealth Bank of Australia (ASX: CBA) shares are worth roughly $110 today, doesn't necessarily mean they have a value of $110.

Let's take another example that investors might be a little more envious over. Today (at the time of writing), one share of the US e-commerce giant Amazon.com Inc (NASDAQ: AMZN) is worth just over US$100. But back in February 2015, those same shares were worth just US$19. So are both prices 'fair value'?

I would argue that the pricing Amazon was commanding back then was extremely undervaluing the business. That's why investors have enjoyed more than a 400% return in just eight years. That's a compounded annual return of 23% per annum.

Back in 2008, Buffett said the following in his annual letter to the shareholders of Berkshire Hathaway. Keep in mind that this was written in the midst of the global financial crisis:

…the market value of the bonds and stocks that we continue to hold suffered a significant decline along with the general market.

This does not bother Charlie and me. Indeed, we enjoy such price declines if we have funds available to increase our positions. Long ago, Ben Graham taught me that "Price is what you pay; value is what you get." Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down.

Now, recessions and a stock market crash like we saw in 2008 don't come along very often. But that doesn't mean we can't still employ this timeless wisdom today.

How to buy ASX shares like Buffett

Although the ASX share market has had a very positive start to the year, I still think there are many ASX 200 shares out there that are being priced well below what they are truly worth.

Take the JB Hi-Fi Ltd (ASX: JBH) share price. It's currently trading on a price-to-earnings (P/E) ratio of just 10. That gives the company a fully franked dividend yield of over 6.7%.

Contrast that with CBA shares. CBA is presently boasting a P/E ratio of 20.45, with a dividend yield of just under 3.5%.

Compared to CBA and the broader market, JB Hi-Fi looks like "merchandise that has been marked down" to me. Buffett has shown this method of value investing can reward investors handsomely. That's why I'm still looking for ASX shares trading at deep discounts right now.

The post I'm listening to Warren Buffett and buying ASX shares at deep discounts appeared first on The Motley Fool Australia.

The stock market has had an incredible start to the 2023 calendar year. Rewind back to the start of January, and we'll see the S&P/ASX 200 Index (ASX: XJO) was at 7,038.7 points.

But today, the ASX 200 is sitting at 7,541 points at the time of writing, a good 7.1% above where it began the year at. Historically speaking, this is an incredibly positive start to the trading year.

What's funny is that the end of 2022 was dominated by investor pessimism. Predictions were abounding that 2023 would 'inevitably' see a recession.

Rising interest rates and high inflation would result in a hard landing for the US economy, and probably Australia's too. Thus, shares were going to have a dreadful year.

Well, anyone who sold their shares on this pessimism would probably be feeling pretty silly right about now.

So that brings us to the question: will there be a stock market crash in 2023?

Is the stock market heading for an ASX 200 crash in 2023?

Well, I'll keep this one simple: I have no idea.

There could be a recession in 2023, or there might not be.

The share market could crash if we have a recession, or it could go higher.

The economy could boom but shares go into a bear market.

All of these scenarios are possible.

But I don't have a crystal ball. Even economists get these kinds of predictions wrong all of the time. And I'm not an economist.

So I'm not going to make any kind of predictions here today. And I'm certainly not basing my investing actions on what might happen to the stock market or the economy this year.

Instead, I'll be trying to follow the advice of the legendary investor Warren Buffett.

Back in his 2012 letter to the shareholders of Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B), Buffett said this about trying to invest based on economic indicators:

Of course, the immediate future is uncertain; America has faced the unknown since 1776. It's just that sometimes people focus on the myriad of uncertainties that always exist while at other times they ignore them (usually because the recent past has been uneventful)…

American business will do fine over time. And stocks will do well just as certainly, since their fate is tied to business performance. Periodic setbacks will occur, yes, but investors and managers are in a game that is heavily stacked in their favor.

The Dow Jones Industrials advanced from 66 to 11,497 in the 20th Century, a staggering 17,320% increase that materialized despite four costly wars, a Great Depression and many recessions. And don't forget that shareholders received substantial dividends throughout the century as well.

Since the basic game is so favorable, Charlie [Munger] and I believe it's a terrible mistake to try to dance in and out of it based upon the turn of tarot cards, the predictions of "experts", or the ebb and flow of business activity. The risks of being out of the game are huge compared to the risks of being in it.

So instead of worrying about whether there'll be a stock market crash in 2023 or not, I'm going to keep on doing what I've always tried to do: invest in the best ASX shares and exchange-traded funds (ETFs) as much as possible, at the best prices possible.

At the end of the day, nothing else really matters.

Sure, we'll get the occasional stock market crash. But these crashes are just good opportunities to load up on our favourite shares and ETFs at even better prices.

Worrying about recessions, stock market crashes, and trying to time the market is a fool's game (and not the good kind of Fool). I think we're all better off playing Buffett's game instead.

The post Will the stock market crash in 2023? appeared first on The Motley Fool Australia.

One of the world's most famous investors is Warren Buffett.

Over several decades, through his Berkshire Hathaway business, the Oracle of Omaha has delivered stunning returns for investors.

The good news is that Buffett has achieved these feats without any fancy high frequency trading strategy. Instead, he has made long term investments in high quality companies and let compounding work its magic.

The even better news is that there's nothing to stop you from following Buffett's investment style to grow your own wealth.

But which ASX shares could be Buffett-style investments right now? Two that tick a lot of boxes are listed below. Here's what you need to know about them:

Transurban Group (ASX: TCL)

One quality that Buffett looks for when making investments is a competitive advantage or moat. This is something that this toll road operator has with its portfolio of key assets across Australia and North America. If you want to drive across Melbourne and Sydney quickly, you're probably going to have to use its roads. In fact, the company estimates that customers using Transurban roads (compared to alternative routes) saved a total of 323,000 hours of travel time each workday in FY 2022.

Citi is a fan of Transurban and has a buy rating and $15.70 price target on its shares. Its analysts are also forecasting consistent dividend growth through to FY 2025, which is likely to go down well with an investor like Warren Buffett.

VanEck Vectors Morningstar Wide Moat ETF (ASX: MOAT)

Another (simple) way to invest like Buffett is to buy the VanEck Vectors Morningstar Wide Moat ETF. This is a Warren Buffett-inspired ETF that gives investors access to a diversified portfolio of companies with sustainable competitive advantages and fair valuations. At present, its holdings include businesses with strong moats such as Amazon, Intel, Microsoft, and Walt Disney.

Over the last 10 years, the index that the fund tracks has beaten the market with a total average return of 18.11% per annum. This would have turned a $10,000 investment into over $50,000.

The post Invest like Warren Buffett with these ASX shares appeared first on The Motley Fool Australia.

While Warren Buffett is not a fan of paying dividends, having labelled the one and only Berkshire Hathaway dividend a mistake, he certainly is a fan of receiving them.

Over the years, Buffett has consistently bought stakes in high-quality businesses that share their profits with shareholders each year.

And while the Oracle of Omaha tends to focus on the US market, that doesn't mean there aren't any Buffett-style dividend stocks for investors on the ASX.

Listed below are a couple of ASX dividend stocks that might tick a few boxes for the legendary investor. Here's what you need to know about them:

APA Group (ASX: APA)

Buffett is no stranger to utilities. In fact, Berkshire Hathaway has a subsidiary called Berkshire Hathaway Energy that owns and operates energy businesses across the United States, Canada, and even the United Kingdom.

APA Group is similar to Berkshire Hathaway Energy. It deals in the ownership and operation of energy infrastructure assets and businesses. This includes energy infrastructure, comprising gas transmission, gas storage and processing, and gas-fired and renewable energy power generation businesses located across Australia.

According to a note out of Morgans, its analysts expect APA to pay dividends per share of 55 cents in FY 2023 and 56.5 cents in FY 2024. Based on the current APA share price of $10.65, this will mean yields of 5.15% and 5.3%, respectively.

QBE Insurance Group Ltd (ASX: QBE)

Another area of the stock market that Buffett is known to frequent is the insurance sector. Berkshire Hathaway owns or owns stakes in insurers including GEICO, Gen Re, and Berkshire Hathaway Speciality Insurance.

Luckily for Australian investors, there are a number of insurance shares on the local share market. One, Insurance Australia Group Ltd (ASX: IAG), even counts Berkshire Hathaway as a shareholder.

In addition, there is insurance giant QBE. It is involved in underwriting general insurance and reinsurance risks globally.

Goldman Sachs is expecting some big dividend yields from the insurer. It is forecasting dividends per share of 75 cents in FY 2023 and 80 cents in FY 2024. Based on the current QBE share price of $13.86, this will mean 5.4% and 5.8% yields, respectively.

The post 2 Warren Buffett-style ASX dividend stocks for big income appeared first on The Motley Fool Australia.

It's not often anyone gets to outdo the legendary Warren Buffett at investing.

After all, Buffett has an unrivalled six-decade investing career, which he has used to build his company Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B) from relative obscurity to the US$693 billion behemoth it is today. Giving himself a net worth of US$110 billion in the process, of course.

Yet, like all of us, Buffett is only human. As such, he does make mistakes from time to time. I'm sure one of his biggest mistakes was passing up on Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL) stock. Alphabet is the US tech giant that owns Google.

It is one of the most successful companies of all time, giving investors a 3,270% return since its 2004 IPO (that's 17.2% per annum compounded).

Yet neither Buffett nor Berkshire owns this company. Nor has Buffett or Berkshire ever owned it.

Buffett never bought Alphabet stock. Should we?

Alphabet's Google is one of the most dominant companies on the planet. It has near-total dominance in the global search engine business, only ceding ground where it has been completely barred from participating in a market, as has happened with China.

But Google also dominates in other areas too. It owns the Android smartphone operating system, which is by far the most used system globally. Other Alphabet apps like Google Maps, Translate, and YouTube are also among the world's most popular.

Quite simply, Alphabet has one of the widest and deepest moats of any company anywhere. And yet Buffett, who coined the term 'moat' himself, has never owned it.

To be fair, some aspects of Alphabet's business would be hard for a nonagenarian to get their head around. And Buffett has come out before and waxed lyrical about his love of the company and regret in not buying it:

But even though Buffett has never bitten the bullet on Alphabet, that doesn't mean we can't. And right now might be the perfect time to consider an investment.

Be greedy when others are fearful

Alphabet stock has had a pretty shocking year. In early 2022, Alphabet's Class A stock hit a high of US$151.55. Today, it is going for just US$91.29, a fall of almost 40%:

This leaves the company on a pretty compelling valuation, in my view. One that hasn't happened for Alphabet in a decade.

At present, Alphabet's Class A stock has a price-to-earnings (P/E) ratio of 18.48. That means investors are being asked to pay $18.48 for every $1 of earnings.

By comparison, the ASX's Commonwealth Bank of Australia (ASX: CBA) has a P/E ratio of 19.7 right now. Woolworths Group Ltd (ASX: WOW) is sitting at a P/E ratio of 26.88.

Yes, by this metric, CBA and Woolies shares are more expensive than Alphabet stock. I know which company I would rather own for the next decade and beyond! So perhaps now is the time to do what Buffett did not, and buy Alphabet shares.

The post Alphabet stock: A once-in-a-decade opportunity to outdo Warren Buffett? appeared first on The Motley Fool Australia.

The good news is that so much is known about Buffett's investment style that it is easy for investors to replicate his strategies with ASX shares.

And while this doesn't mean you're guaranteed to generate the same level of returns as the Oracle of Omaha, it certainly puts you in a position to grow your wealth over the long term.

With that in mind, here are a couple of ways you can invest like Warren Buffett with ASX shares:

Long term focus

Buffett is well-known for taking a long-term perspective when making investments. Rather than make short-term trades, he buys shares "on the assumption that they could close the market the next day and not reopen it for five years".

This allows investors to benefit from compounding. This is something that Buffett benefits from today, with an estimated 90% of his wealth being generated after his 65th birthday.

Stressing the importance of compounding, Buffett's partner in crime at Berkshire Hathaway, Charlie Munger, once commented:

The first rule of compounding: Never interrupt it unnecessarily.

Buy wonderful ASX shares at a fair price

Rather than chasing after the latest hot stock, Buffett looks for wonderful companies that are trading at fair prices. Wonderful companies are those that have strong competitive advantages and are run by competent management. He famously quipped:

It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

In respect to competitive advantages or moats, Buffett spoke about how important it is for a company to have one in his 2007 letter to shareholders. He explained:

A truly great business must have an enduring "moat" that protects excellent returns on invested capital. The dynamics of capitalism guarantee that competitors will repeatedly assault any business "castle" that is earning high returns. Therefore a formidable barrier such as a company's being the lowcost producer (GEICO, Costco) or possessing a powerful world-wide brand (Coca-Cola, Gillette, American Express) is essential for sustained success. Business history is filled with "Roman Candles", companies whose moats proved illusory and were soon crossed.

Overall, if you follow Buffett's strategy, I believe you have a good chance of generating solid returns over the long term with ASX shares.

The post I would follow Warren Buffett's advice when buying ASX shares in 2023 appeared first on The Motley Fool Australia.

Investors around the world keep a close eye on the goings-on of Warren Buffett and the multi-billionaire's company Berkshire Hathaway Inc (NYSE:BRK.A)(NYSE:BRK.B). However, a deal between the investing great and home-grown insurance share Insurance Australia Group Ltd (ASX: IAG) has been under Aussies' noses for years.

The market has been reminded about a whole of account quota share (WAQS) agreement between S&P/ASX 200 Index (ASX: XJO) insurer IAG and Berkshire Hathaway subsidiary National Indemnity Company (NICO) today with news of its renewal. Though, other key deals between the pair have been scrapped.

The IAG share price is up 0.84% on the back of the announcement, trading at $4.80.

Let's take a closer look at what agreements the pair have and haven't renewed.

IAG share price lifts on news of Buffett agreement

The IAG share price has climbed on Thursday after the company announced it renewed one of its previous agreements with Buffett's Berkshire Hathaway.

The renewed WAQS agreement represents 20% of IAG's WAQS program. It came into effect on 1 January 2023 and applies until 31 December 2029.

Quota share deals see an insurer – in this case IAG – offering a reinsurer – such as NICO – a portion of insurance premiums in exchange for paying out the same portion of claims – in this case, 20%.

IAG has now renewed 30% of the 32.5% WAQS with various reinsurers. Negotiations on the remaining portion are expected to be completed in the coming months.

Meanwhile, a strategic relationship agreement and equity ownership subscription agreement previously made with Berkshire Hathaway won't continue.

IAG formed a strategic relationship with Buffett's company in 2015. The billionaire said at the time:

I am 84 years old and this is my first investment in an Australian company. I've been very derelict, but it has been worth waiting for.

Back then, Berkshire Hathaway forked out $500 million for a 3.7% stake in IAG, paying $5.57 per share.

It also agreed its stake in the ASX 200 insurer would remain between 3.7% and 14.9%. Meaning the billionaire might now be free to sell his holding in the company.

IAG chief financial officer Michelle McPherson commented in today's release, saying:

The terms of the renewed agreement with Berkshire Hathaway's NICO reflect the maturing of our partnership, and the removal of supporting subscription and strategic relationship agreements provides consistency with our other quota share partner arrangements.

The post What do IAG shares have in common with Warren Buffett? appeared first on The Motley Fool Australia.

The legendary investor Warren Buffett may be in his 90s but he is still regarded as one of the best investors in the world. His holding company Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B) has navigated the stormy waters of the past two years with aplomb, and its shares are now sitting at 40% above its pre-COVID highs.

So what would Buffett's first piece of advice for someone with no savings be? I would bet he'd repeat this advice he gave once: "Do not save what is left after spending, but spend what is left after saving".

You can't invest for your future if you have no savings to start with. And consistently building up a healthy savings account starts with spending less money than you earn. You simply can't get ahead unless you master this skill.

But once you have a healthy pile of savings squirrelled away for a rainy day, what does one do next?

How Warren Buffett tells most people to invest

Well, Buffett would tell you to start investing, since cash has proven to be a poor store of value over a long period of time.

Warren Buffett is well known for his value investing style. He loves finding companies that are trading for less than what he sees they are worth. One of his most famous quotes is "price is what you pay, value is what you get".

Buffett loves buying quality companies when they are on the nose with most other investors. Some of his biggest positions were built out when a company had a temporary fall in value.

But what if figuring out what an investment is worth is not your strong suit? Well, Buffett reckons most people would be better off just investing in a simple index fund anyway.

In 2017, he told CNBC that investors should "consistently buy an S&P 500 low-cost index fund" and "keep buying it through thick and thin, and especially through thin".

So that's some of Warren Buffet's wisdom that I think would be of most use to a would-be investor starting 2023 with no savings. Investing takes a long time to bear fruit. But when it does, you'll be glad you started.

The post Starting 2023 with no savings? I'd follow Warren Buffett and start building wealth appeared first on The Motley Fool Australia.

While this is disappointing for investors, it may have created an excellent buying opportunity.

However, before rushing in, investors may want to listen to some of Warren Buffett's advice about cheap shares first.

Cigar butt investing

In Berkshire Hathaway's 1989 letter, Mr Buffett warned investors to stay away from terrible companies even if you could make a quick profit. He said:

If you buy a stock at a sufficiently low price, there will usually be some hiccup in the fortunes of the business that gives you a chance to unload at a decent profit, even though the long- term performance of the business may be terrible. I call this the "cigar butt" approach to investing. A cigar butt found on the street that has only one puff left in it may not offer much of a smoke, but the "bargain purchase" will make that puff all profit.

Instead of cigar butt investing, the Oracle of Omaha thinks investors should focus on making long term investments in "wonderful" companies. He adds:

Unless you are a liquidator, that kind of approach to buying businesses is foolish. First, the original "bargain" price probably will not turn out to be such a steal after all. In a difficult business, no sooner is one problem solved than another surfaces – never is there just one cockroach in the kitchen. Second, any initial advantage you secure will be quickly eroded by the low return that the business earns. For example, if you buy a business for $8 million that can be sold or liquidated for $10 million and promptly take either course, you can realize a high return. But the investment will disappoint if the business is sold for $10 million in ten years and in the interim has annually earned and distributed only a few percent on cost. Time is the friend of the wonderful business, the enemy of the mediocre.

Buffett then famously concludes:

It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. Charlie understood this early; I was a slow learner.

The post I would follow Warren Buffett's advice when buying ASX shares in 2023 appeared first on The Motley Fool Australia.

The Oracle of Omaha has earned his legendary reputation after generating consistently strong returns for Berkshire Hathaway over multiples decades.

For example, according to Buffett's most recent annual letter, Berkshire Hathaway's market value per share has increased by an average of 20.1% per annum from 1965 to 2021. This is almost double the return of the S&P 500 index, including dividends, which has returned an average of 10.5% per annum over the same period.

Impressively, this means that Berkshire Hathaway has returned a whopping 3,641,613% over the 56 years. This would have turned a single dollar investment into over $3.5 million today.

In light of this, when Buffett speaks, it certainly can pay (almost literally) to listen.

Buy quality cheap ASX shares

Buffett is well known to take advantage of the type of market volatility we have experienced this year. He famously quipped:

Be fearful when others are greedy and be greedy when others are fearful.

The good news is that because of inflation and recession fears, there are a good number of cheap-looking shares on the ASX.

However, Buffett doesn't buy shares just because they look cheap, he buys them when he feels they are trading at a discount to their underlying value.

This means don't just buy a share because it has dropped 80% this year and you think it will rebound. There could be a reason why that decline has happened and there could be more to come. You could ultimately end up trying to catch a falling knife.

Instead, investors should look for ASX shares that have been sold off but still have strong business models and equally strong outlooks. Buffett explained in his 2014 letter:

[T]hough marginal businesses purchased at cheap prices may be attractive as short-term investments, they are the wrong foundation on which to build a large and enduring enterprise. Selecting a marriage partner clearly requires more demanding criteria than does dating.

This statement echoes something Buffett said in his 1994 letter that could be particularly apt for investors looking for cheap ASX shares. He said:

In my early days as a manager I, too, dated a few toads. They were cheap dates – I've never been much of a sport – but my results matched those of acquirers who courted higher-priced toads.  I kissed and they croaked. After several failures of this type, I finally remembered some useful advice I once got from a golf pro (who, like all pros who have had anything to do with my game, wishes to remain anonymous).  Said the pro:  "Practice doesn't make perfect; practice makes permanent."  And thereafter I revised my strategy and tried to buy good businesses at fair prices rather than fair businesses at good prices.

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We don't know when the next recession will be. Nor does anyone. Even economists have a mighty hard time predicting what the economy will do next year, or even next month. But what we do know is that there will be another recession at some point. Booms and busts are an inevitable part of our capitalist system.

We also know that periods of rising interest rates often come before a recession. That's what happened in the global financial crisis of 2007-2008. And in the early-2000s recession before that.

Australia technically escaped these recessions, but the world didn't. And the Australian economy was far from healthy during these periods, escaping the official definition of two quarters of negative GDP growth in 2008 by a whisker.

But we digress. Interest rates have indeed been rising in 2022, and by one of the fastest trajectories in modern times. Here in Australia, our official cash rate was just 0.1% at the start of the year. Today, following the Reserve Bank of Australia (RBA)'s recent December hike, it's now at 3.1%.

So if these hikes do lead to a recession in 2023, what are ASX investors to do? Sell out of everything, move to cash and wait for the good times to return? Perhaps we should start selling now, just in case?

That would be a big, wealth-destroying mistake in my view. I'll be following the advice of the legendary investor Warren Buffett instead.

Some Buffett wisdom for a recession

Perhaps Buffett's most famous quote is, "be greedy when others are fearful and be fearful when others are greedy". It's another way of saying 'buy low, sell high', which is the timeless advice everyone knows when it comes to the share market.

But this quote from Buffett's 2009 letter to shareholders of his company Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B) was written in the aftermath of the global financial crisis. It directly addresses investing in recessions and is some of the best advice he has given on the topic:

Big opportunities come infrequently. When it's raining gold, reach for a bucket, not a thimble…

We've put a lot of money to work during the chaos of the last two years. It's been an ideal period for investors: A climate of fear is their best friend. Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance. 

In the end, what counts in investing is what you pay for a business – through the purchase of a small piece of it in the stock market – and what that business earns in the succeeding decade or two.

So here is Buffett calling a recession "an ideal period for investors". That's the attitude I'll be taking into the next recession we have.

Here's a clip of Buffett, courtesy of CNBC, discussing this principle further:

When a recession hits (or is about to hit), investors are often overcome by fear of losing money. As such, many have a tendency to throw the baby out with the bath water and sell out of everything. Thus, most share prices, not just those businesses likely to be hardest hit in a recession, can fall dramatically.

One of Buffett's biggest investments is in Coca-Cola Co (NYSE: KO) shares.

Do people stop drinking Coke in a recession? No.

And yet, in the global financial crisis, the Coca-Cola stock price fell by more than a third. It did so again during the COVID crash of 2020.

Yet today, Coca-Cola shares aren't too far from an all-time high. It would have been a bargain in hindsight to load up on this company at either of these periods.

So try and remember Buffett's wisdom if there is a recession next year. If you are greedy when others are fearful and put out the bucket while it's raining gold, it may well be the best thing that's ever happened to your share portfolio.

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A number of the ASX's leading names have seen their share prices take a bath in recent times. For example, the Xero Limited (ASX: XRO) share price has dropped more than 50% in the year to date.

Whether the sell-off is justified for Xero and many other ASX growth shares is debatable. But the question now is whether these declines represent an opportunity, or whether higher interest rates mean these lower prices are about right.

Warren Buffett's wise advice

I don't think every business is worth buying just because its share price has dropped, but when almost the entire market is sold down, such as during the COVID crash, I think indiscriminate selling presents a great hunting ground.

One of the most quoted Warren Buffett sayings is this:

Be fearful when others are greedy and greedy when others are fearful.

In other words, the best time to buy ASX shares may be when there is widespread uncertainty because this is when share prices are lower.

But, there are also likely to be times when investors are euphoric. I think 2021 was an example of this when almost everything displaying growth was loved by investors. We should be cautious around those times.

Buffett also has this gem of advice from 2001:

To refer to a personal taste of mine, I'm going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the 'Hallelujah Chorus' in the Buffett household. When hamburgers go up in price, we weep. For most people, it's the same with everything in life they will be buying — except stocks. When stocks go down and you can get more for your money, people don't like them anymore.

In his 1997 annual letter, Buffett said:

If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period?

Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall.

Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.

Foolish takeaway

Warren Buffett doesn't try to predict where share prices are going to go in the short term. If he sees a wonderful business at a fair price, then he's willing to invest. For example, Taiwan Semiconductor Manufacturing recently entered the Berkshire Hathaway portfolio after Warren Buffett's business invested US$4 billion. He's still investing during this period and I think we can find some good ASX shares at the current prices.

If we waited until things seemed completely 'safe', share prices would probably have gone much higher. Plus, there always seems to something going on in the news, so it may be wise to ignore that noise.

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Not that Warren Buffett knows too much about retirement. Although the man is now 92 years old, he is still very much not retired and remains chair and CEO of the company he has run for more than six decades, Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B).

Some Buffett wisdom for a pending retirement

And Buffett knows a thing or two about obtaining a growing passive income. He bought shares in Coca-Cola Co (NYSE: KO) back in 1988. Coca-Cola is a well-known dividend share over in the United States.

But, as our Fool colleagues over in the US point out, such was Buffett's prowess in finding the right price, he now enjoys a yield on cost of 54% every year.

So this tells us that Buffett only invests in shares that he feels comfortable holding for a generation or longer. Why Coca-Cola? Buffett's love of what he calls an economic moat is probably why. And Coke arguably has more than one. There'd be few people on the planet who wouldn't know what a Coke is for one. But, as usual, Buffett puts it best:

If you gave me $100 billion and said take away the soft drink leadership of Coca-Cola in the world, I'd give it back to you and say it can't be done.

But Buffett also tells us that it's ok not to go chasing individual shares for an investment portfolio, even a retirement one.

He once said this on index investing:

If you invest in a very low cost index find – where you don't put the money in at once, but average in over 10 years – you'll do better than 90% of the people who started investing at the same time.

So that's the two takeaways we can take from Buffett for a healthy retirement. Buy the best companies at the right price. And if you don't know how, stick with a low-cost index fund.

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What makes a stock a 'Warren Buffett-style' stock? That's a good question.

Warren Buffett is without a doubt one of the greatest investors of all time — and a living legend. Over the past 60 or so years, he has turned Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B) from a failing textiles mill into the US$678 billion conglomerate it is today, achieving a compound annual return of around 20% per annum on average along the way.

What's in a MOAT?

So what kind of companies does Buffett typically invest in? Well, they usually have one thing in common: a moat. A moat is an investing concept coined by Buffett himself. Here's how he described the concept in his 2007 annual letter to shareholders of Berkshire Hathaway:

It's better to have a part interest in the Hope Diamond than to own all of a rhinestone. A truly great business must have an enduring 'moat' that protects excellent returns on invested capital. The dynamics of capitalism guarantee that competitors will repeatedly assault any business 'castle' that is earning high returns.

Therefore a formidable barrier such as a company's being the low-cost producer (GEICO, Costco) or possessing a powerful world-wide brand (Coca-Cola, Gillette, American Express) is essential for sustained success. Business history is filled with 'roman candles', companies whose moats proved illusory and were soon crossed.

Looking at Berkshire Hathaway's current holdings, we see plenty of moats. Companies like Coca-Cola and American Express, long-term Berkshire holdings, possess some of the most powerful brands in the world. Amazon.com is one of Berkshire's more recent holdings. But there's no doubt Amazon has one of the globe's best pricing moats.

And Apple, Berkshire's largest holding, is one of the most dominant companies on the planet with its brand, management team, and scale.

Berkshire doesn't own any ASX shares at present, so it's hard to know what kind of Australian companies Buffett might go for today. But there is one ASX investment that hones in on Buffett's concept of a moat. And it's an exchange-traded fund (ETF) that I personally own.

The VanEck Vectors Wide Moat ETF (ASX: MOAT) is a fund that focuses on only holding US shares that display characteristics of Buffett's moat concept. These are selected by Morningstar, which looks for companies with "sustainable competitive advantages".

This ETF's current portfolio includes names like Microsoft, Alphabet, Kellogg, and Disney. Berkshire's holding Amazon is also present, as are Berkshire Hathaway shares themselves.

Why I will never sell this Buffett-style ASX ETF

So we know that this ETF attempts to invest like Buffett does by looking for companies with moats. But does it have the numbers to back it up?

Well, this ETF has returned an average of 14.72% per annum over the past five years. That beats its S&P 500 benchmark, which has returned an average of 13.19% per annum over the same period.

Since the fund's inception in mid-2015, the VanEck Wide Moat ETF has averaged an annual return of 14.88%, again beating the S&P 500 which averaged 12.78%.

Here's a look at this ETF's unit price to illustrate:

So we have a Buffett-style investment that has consistently outperformed the market. That's enough to earn this ETF a place in my own portfolio. And enough for me to never want to sell this ASX investment.

The post One Warren Buffett-style stock I'm 'never' selling appeared first on The Motley Fool Australia.

Building a million-dollar portfolio might sound like a pipedream to many market watchers, but with the right strategy, know-how, and, arguably, luck, it can be done. Not only that, I'd argue it can be done by investing in only a handful of ASX shares.

Indeed, that's how investing great Warren Buffett built a fair chunk of his more than US$100 billion fortune. The strategy also helped his company Berkshire Hathaway Inc (NYSE: BRK.A) (NYSE:BRK.B) post an average annual return of around 20% between 1965 and 2021.

Such a return would turn a $500 monthly investment into more than $1 million in just 20 years – before considering dividends. That's the power of compounding! Of course, past performance isn't an indication of future performance.

Here's how I would aim to build a $1 million portfolio by investing in only a few ASX shares.

Taking Buffett's lead

Fortunes can be made by choosing the right ASX share to buy at the right time.

For instance, investing $1,000 in Fortescue Metals Group Limited (ASX: FMG) shares back in the early 2000s could see a shareholder boasting a $1 million stake in the iron ore giant today.

Buying big into a small number of shares is the strategy generally employed by Buffett. Right now, nearly 75% of Berkshire Hathaway's US$296 billion portfolio is made up of just five shares.

The investing great famously once said:

We think diversification, as practiced generally, makes very little sense for anyone that knows what they're doing.

Of course, diversification plays an important role in many investors' portfolios.

Investing in a broad variety of ASX shares can protect an investor's assets in the event of a downturn in a single sector or company.

But, as Buffett points out, protecting against risk also lessens the chance of realising market-beating returns.

How to pick winning ASX shares

However, it's not easy to identify millionaire-making ASX shares. Even Buffett balances his statement by noting investing in a non-diverse portfolio demands a high level of knowledge and experience.

The billionaire touts his strategy of finding undervalued, quality shares. But more than that, he analyses an underlying business from top to toe, considering its balance sheet and competitive edges, before even thinking about buying in.

However, once he does snap up a stake in a company, he aims to hold tight for years to come. In the meantime, he largely ignores the market's movements.

While that's no easy task, it's how I would aim to build a million-dollar portfolio by investing in just a few potentially market-beating ASX shares.

Though, even a perfect portfolio is bound to experience rough days and downturns as the years go by. Additionally, any return on investment, or even downside protection, can never be guaranteed.

The post I'd aim for a million by buying just a few ASX shares appeared first on The Motley Fool Australia.

As 2022 starts to close, it's only natural for investors to start peeking toward 2023. So far in 2022, the indexes have fared pretty miserably, with the Nasdaq-100 down 29% and the S&P 500 down 17%. Which one will have a better 2023?

Let's look at these indexes and their makeups and find out which is more likely to have a better 2023 ahead.

The indexes are highly concentrated on the top

At the top, the indexes have a lot of overlap.

Data source: Slickcharts. Data as of Nov. 19. *Note: Both Alphabet class shares combined.

Data source: Slickcharts. Data as of Nov. 19. *Note: Both Alphabet class shares combined.

As you can see, Apple, Microsoft, Amazon, and Alphabet make up a considerable chunk of these indexes. In the S&P 500, they account for 19.83%. It's basically double for the Nasdaq-100, with that group making up 39.16% of the index. It's pretty straightforward: How these companies do will significantly steer how the overall index does.

While these three are tech-focused, they compete in different markets. Both Apple and Amazon are a good measure of the pulse of the consumer, as their sales are highly affected by consumer sentiment. If inflation cools, and consumers don't need to worry about rising grocery prices or housing costs, they may treat themselves to the latest device.

Alphabet and Microsoft are business-focused, but for different reasons. Alphabet's primary revenue stream is advertising, and many clients have pulled back their spending levels in 2022 due to the uncertain business environment. If the outlook improves, expect this revenue to return. Microsoft's cloud business and Office product suite indicate how willing businesses are to spend on their infrastructure, but Microsoft's consumer product division also indicates how individuals are doing. 

If the consumer gets stronger and business outlook improves, these four will boom. If that's the case, then the Nasdaq-100 will likely have a better year because it is concentrated in companies that will benefit the most. But if 2023 brings an economic recession, the S&P 500's diversity will help it to outperform the Nasdaq-100.

The companies outside the top five are very different

For the S&P 500, when you move out of the top five, the companies become much more diverse.

Data source: Slickcharts. Data as of Nov. 19.

Now, there are industrials, healthcare, and energy sectors represented, giving the index some much-needed balance. Looking at the top 20 reveals even more diversity, with financials, energy, and healthcare rounding the index out.

This is far from the case for the Nasdaq-100.

Data source: Slickcharts. Data as of November 19. Note: Both Alphabet class shares combined.

Besides Pepsi and Costco, these companies are more in the tech sector. But, unlike the S&P 500, it doesn't get much better outside the top 10, with most of the top 20 consisting of chipmakers, communication companies, and software businesses. Now, this probably isn't a surprise because the media often refers to this index as the "tech-heavy Nasdaq."

Still, tech businesses don't do well if the economy is struggling.

Does that mean you should write the Nasdaq-100 off? Absolutely not. Tech stocks tend to do very well in the recovery phases of a recession. Plus, the stock market is forward-looking, and stocks usually tend to do better during a recession than leading up to one.

That last tidbit of information should keep investors in the market, especially now with a recession, or at least an economic slowdown, imminent. However, if you're trying to decide which index to buy, you need to utilize the 2023 outlook. If you think 2023 will be a repeat of 2022, then the S&P 500 is the better choice. On the other hand, if you believe the economy will begin to recover and the Federal Reserve eases its interest rate hikes, then the Nasdaq-100 is the place to be.

One last point: There's nothing wrong with owning both indexes if you don't know what 2023 will bring. Personally, I think this is an intelligent strategy, as it gives investors the upside of recovery and the safety of a balanced investment.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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There are few, if any, people whose names are associated with success in the stock market quite like Warren Buffett, and for good reason. With a net worth of more than $100 billion, Buffett has rightfully earned his spot among investing royalty. And one of the best things about his success is that it didn't take some extravagant strategy to do it.

As we endure a bear market that has shrunk the value of many investors' portfolios, here are some gems from Buffett that can help you better handle it and, indeed, use it as an opportunity.

There's value to be found

Warren Buffett is the poster child for value investing, which is a strategy by which investors look to find stocks trading at prices lower than their intrinsic (true) value. Value investors aim to buy undervalued stocks and profit from the increase in their intrinsic value eventually. For example, if a stock is trading at $100, but an investor believes the intrinsic value is $120, they'd invest, hoping to, at minimum, profit from the 20% increase once the market realizes its true value.

During bear markets, investors can find many great companies trading at a 'discount' or whose stock price may have overcorrected. Let's take Walmart, for example. From early April to mid-June 2022, Walmart's stock price dropped by well over 20% to around $120 per share, which many investors would agree was below its intrinsic value. Investors who took advantage of that dip have made more than 25% returns since then.

Generally, when a stock's price drops significantly, you must ask yourself why it's happening. But, during a bear market, when prices are dropping across the board, many of these declines are just a byproduct of the greater economy and not an indication of something fundamentally changing with the business.

Don't follow the crowd

There are many great investing quotes credited to Buffett, but none may be as relevant to today's environment as: "Be fearful when others are greedy, and greedy when others are fearful." Stock prices decline because investors begin selling more shares than people are buying, and demand drops. This is usually a sign that investors are fearful. Instead of following suit, it could be time to get greedy and turn it up a notch if you have the financial means.

History has shown us that bear markets are inevitable, and often necessary. The sooner you learn that the better because it helps you tune out the short-term noise and focus on the long term. It's easy to invest consistently when prices are rising, but not so much when prices are seemingly dropping before your eyes. Slowing or stopping investing can set back your financial progress.

Since going public in December 1980, Apple's stock price has increased well over 100,000% yet during that span, it's had negative returns in one-third of those years (including 2022 so far). Down years happen to even the best of companies; it's virtually inevitable. However, if you're focused on the long term, it shouldn't matter too much if your portfolio fluctuates weekly, monthly, or yearly as long as the results are there in the long run.

Utilize dollar-cost averaging

Buffett has long been a proponent of dollar-cost averaging, stating, "If you like spending six to eight hours per week working on investments, do it. If you don't, then dollar-cost average into index funds." To dollar-cost average, you pick your stocks, determine how much you can invest, and then invest on a set schedule no matter what. The frequency isn't as important as sticking to your preset schedule.

Dollar-cost averaging is good because it keeps you consistent as well as prevents you from trying to time the market -- which investors tend to do during bear markets more so than bull markets. Think about it: If prices are dropping, why buy today when you can get it cheaper later on, right? In theory, yes. But the problem is that's trying to time the market, which is essentially impossible to do consistently over the long run.

Dollar-cost averaging makes it easier to focus on the end goal without getting distracted.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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