In this market I’m following Warren Buffett to scoop up cheap shares!

What makes things cheap? Is it just the price? I don’t think so: even a low price might be too expensive for such a bad quality. I see cheapness as a thing value. So when looking for cheap stocks, I hunt for good quality businesses with a price tag below what I think they deserve.

I can hardly claim credit for that approach. It is used by many investors, including billionaire Warren Buffett. As Buffett has said in the past, “what price do you pay. Value is what you get“.

With the stock market this month, some stock prices have fallen. But I think many concerned businesses don’t see the underlying commercial prospects getting worse. That gives me a chance to scoop up cheap shares in good English names. That’s exactly what I’ve been doing for the past few weeks. I’m still on the hunt in the choppy market now!

How to find cheap shares

So what approach should I take when driving?

I keep what I know. Like Buffett, I think that improves my ability to understand what I’m criticizing. He refers to this as staying within the circle of competence.

I look for businesses that I think have a strong competitive advantage in the industry that I expect customers to want. For example, lately I have been adding to holding JD Wetherspoon. I think our existing pub chain and our well-known value proposition help differentiate us from our competitors.

Then I consider whether my business will be worth over the long term. Even in an environment of competence, this can be a challenge. After all, risk can be difficult to assess and measure.

Sometimes, I find it so difficult to appreciate the company that I give up. perhaps Hypnosis it’s a bargain, but I just don’t feel qualified to judge. I don’t fully understand the long-term implications of song royalties.

Hunting for value

When I think I can value the company, I then see that the stock is worth less than it is worth, thus the opportunity cost of tying up money at that time. This is a form of the method known as discounted cash flow valuation.

However, I can make mistakes, and some risks may be more expensive than expected. So like Buffett, I want to invest with a margin of safety.

For me, the cheap shares are not the big ones that sell for a little less than I think it’s worth. However, he is what I see as a screaming bargain: he is trading at a lower price than I thought.

Ponce in the bargain

Sometimes I can see few or no offers in the market.

But other times, share prices fall even for companies with strong prospects. I have been buying Wetherspoon as I think they are cheap now. I’m on the hunt for more cheap stocks to add to my portfolio during this market turmoil.