I would take Warren Buffett’s advice to buy the best UK stocks right now

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Image source: The Motley Fool

After a tough few months in global stock markets, what’s the best way for me to find UK stocks to buy now for my portfolio? I’m taking some advice from legendary investor Warren Buffett. Here’s how.

Ignore market noise

Buffett doesn’t seem to be much affected by market swings. He is able to control his emotions when he sees prices fluctuate sharply.

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Indeed, Buffett is not a trader but a long-term investor. He tries to buy parts of companies that he thinks have great prospects for the coming years. So short-term movements in their stock prices don’t bother him, because he doesn’t think they affect a company’s underlying value.

But one of the benefits of a moving market is that it can sometimes create interesting buying opportunities in companies Buffett likes that are now trading at a more attractive price than before. For example, the actions of Unilever dropped 12% over the past year.

In fact, they are now trading for less than Buffett’s bid for the entire company five years ago. Some risks are more evident now than then – cost inflation putting pressure on profit margins, for example. But I think the company is the same one that Buffett wanted to buy, with premium brands like Dove giving it pricing power. But a drop in the stock price gives me the opportunity to buy it for my portfolio at a more attractive price than before.

Always look for a ditch

Warren Buffett never buys stocks just because their price seems cheap.

Instead, he considers their value. The price is part of it. But value also involves considering the strength of a company’s business prospects. This is why the Sage of Omaha looks for companies that have what he calls a gap. By this he means a competitive advantage that can help them keep their rivals at bay, much like the moat around a medieval castle repelled invaders.

So even if the markets are falling, I still don’t buy stocks just because their price looks cheap. Instead, I look for companies with a moat. For example, this month I bought shares of Victrex. The price looks attractive to me after Victrex stock has fallen 22% in one year. But I also love that the company is a leader in the polymer industry with its own proprietary product technology. This gives the company a Buffett-style moat that could help support future earnings.

How I Am Warren Buffett

I’m not just blindly following Buffett’s stock purchases. In fact, at the moment, I don’t own any shares held by Buffett.

But what I do is apply his approach when looking for UK stocks to buy now for my portfolio. This way, I can pick stocks within my own circle of competence, while benefiting from Buffett’s wisdom.

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