As one of the most successful investors of all time, a lot of people draw inspiration from Warren Buffett. Different investors each have their own circumstances, but I do pay attention to what Buffett does. Fortunately, he is consistent and open about his investing strategy. This means I can know, in broad terms, how Buffett will likely be investing this year.
Here are four ways in which I expect Buffett will approach the market in 2023. Decisions that can also sway my own investment choices.
Avoid market timing
Buffett’s biggest shareholding coming into 2023, by far, is Apple. But over the past year, Apple shares have lost 28% of their value.
If Buffett is such a great investor, why did he not sell a year ago? It is because he avoids market timing? In fact, he sees short-term price movements as mere noise. He tries to focus on the underlying investment case for any given share. He has done this for decades. I expect it to stay central to his approach in 2023.
Exploit chaotic markets
Just because Buffett does not try to time the market, does not mean he pays no attention to it. After all, a falling share price can allow him to scoop up shares in a company he likes — at a more attractive price.
Buffett famously said to be “fearful when others are greedy and greedy when others are fearful“. A couple of years ago we saw a lot of greed in the market. That is now turning to fear in some sectors, raising the prospect of a stock market crash at some point this year, or beyond.
I expect Buffett will be keeping an eye out for any situations in 2023 where a great quality company sees its share price marked down to bargain levels due to that fear in the markets.
That approach is how he ended up investing in American Express in the 1960s – and it continues to work for him today.
Diversification never gets old
One thing I can confidently predict about Buffett’s portfolio in 2023 is that it will remain diversified. I will be following the same approach.
As a seasoned investor, Buffett knows that one can have too much of a good thing. So no matter what he buys or sells in 2023, I expect him to maintain a portfolio spread across a number of shares.
Sticking to the knitting
Will Buffett be investing in space exploration company SpaceX, hydrogen energy firm ITM Power, or e-commerce group THG in 2023?
I cannot be 100% sure of the answer, but I am highly confident that it is no. Buffett typically likes to stick to profitable companies with a proven business model. He does not always do that though, as seen in his ownership of shares in Tesla rival BYD.
The main reason I expect Buffett will not invest any money in the companies mentioned above this year, is because they operate in areas outside his circle of competence. That makes it hard — if not impossible — for him to assess their investment cases.
Buffett has become incredibly rich by investing again and again in a few areas he understands well, such as financial services, insurance, consumer goods and logistics. I expect him to do the same in 2023.