Billionaire and investing powerhouse Warren Buffett is often heralded as the greatest investor of all time. And much of his wealth has been built by investing in undervalued shares – a tactic ASX investors can take advantage of.
Particularly, as this year has weighed on ASX share prices broadly, meaning there are likely plenty of bargains in the mix right now.
The S&P/ASX 200 Index (ASX: XJO) has fallen 9.5% so far this year while the benchmark All Ordinaries Index (ASX: XAO) has dumped 11%.
It's a worse situation on Wall Street. Key New York-based indices have tumbled into bear markets in recent months.
But stock in Buffett's Berkshire Hathaway Inc (NYSE: BRK.A) (NYSE: BRK.B) has outperformed. It's fallen around 2% over the first 10 months of 2022.
It's likely the company's shares have been buoyed by positions in other listed entities that it snapped up for less than their intrinsic values.
So, what advice from the 'Oracle of Omaha' might help ASX investors hunt down undervalued shares of their own? Keep reading to find out.
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The Buffett advice I'd use to buy undervalued ASX shares
Warren Buffett's approach arguably overlaps with what we call value investing. That is, buying shares for less than their true value.
ASX shares can be dubbed 'good value' if they've suffered amid an unrelated market or sector downturn. Or, perhaps, if they've lost popularity for reasons unrelated to their business.
However, Buffett famously doesn't seek out cheap shares to buy. He is often quoted as saying:
It's far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.
That can arguably be broken down into two pieces of advice. First, that it's important to assess a company's quality, competitive advantages (or disadvantages), and future prospects. Next, a buyer should consider if a company's current share price actually reflects fair value.
Generally, buying shares in a quality ASX-listed business for less than it's ultimately worth means an investor primes themselves for potentially greater capital returns. Though, future gains are never guaranteed.
Of course, identifying value where the market has not isn't always easy. Perhaps that's why Buffett advises investors to know the businesses and sectors they buy into back-to-front.
Finally, don't fret about what the market is doing. Perhaps surprisingly, Buffett doesn't attempt to time the market.
Instead, he makes sure he is confident in a mooted investment before jumping in, no matter the broader environment.
While a downturn might induce dread or anxiety, the guru remains confident the market will return to the green, as it has historically.
No doubt, there are plenty of undervalued shares trading on the ASX as we speak.
