3 pearls of Warren Buffett wisdom I think all ASX investors need right now

The Sage of Omaha has some great advice to call on.

Legendary share market investing expert and owner of Berkshire Hathaway Warren Buffett

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Warren Buffett is one of the world's greatest investors. Berkshire Hathaway, the business Buffett has led for decades, achieved an average annual return of 19.8% between 1965 and 2023.

Buffett is also one of the world's most generous people with his money and advice. He plans to donate most of his huge wealth to charity. He also spends hours every year at the Berkshire Hathaway annual general meeting answering questions from shareholders and has given numerous pieces of advice over the years.

I will talk about three Buffett pearls of wisdom that I think are very relevant to today's investment conditions.

Interest rates

Inflation remains higher than central banks would like, so interest rates may stay at this level for longer. The US Federal Reserve boss Jerome Powell said earlier in May:

We did not expect this to be a smooth road. But these [inflation readings] were higher than I think anybody expected.

What that has told us is that we'll need to be patient and let restrictive policy do its work.

Of course, that doesn't mean we shouldn't invest at all. But, I believe investors should continue to assess company valuations on their merits and only buy if they think long-term returns can be solid.

Warren Buffett once explained why interest rates are so important to valuations:

The value of every business, the value of a farm, the value of an apartment house, the value of any economic asset, is 100% sensitive to interest rates because all you are doing in investing is transferring some money to somebody now in exchange for what you expect the stream of money to be, to come in over a period of time, and the higher interest rates are the less that present value is going to be. So every business by its nature…its intrinsic valuation is 100% sensitive to interest rates.

Don't have to swing at every pitch

At a time when the share prices of many businesses are close to 52-week highs or all-time highs, I think it would be reasonable for investors to be discerning about which investments they're buying.

Investing is not like baseball, where batters must swing at pitches sooner or later. We can take our time with investments and only buy shares at a price we like.

Warren Buffett explained how to handle investing in this situation:

The trick in investing is just to sit there and watch pitch after pitch go by and wait for the one right in your sweet spot. And if people are yelling, 'Swing, you bum!,' ignore them.

When the market does become fearful, that could be the time to be greedy. There doesn't need to be a bear market to find opportunities, though; I've written plenty of articles recently where I see opportunities right now.

Great companies at fair prices

There is a wide range of potential ASX share investments for us to buy. Warren Buffett and Charlie Munger have been advocates of investors focusing on wonderful companies rather than average businesses. Warren Buffett said:

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

By choosing great businesses, I think those investments are much more likely to deliver strong metrics such as a higher return on equity (ROE) and better compounding of net profit after tax (NPAT) over the long term. Owning wonderful companies can deliver good share price (and dividend) returns over time.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway. The Motley Fool Australia has recommended Berkshire Hathaway. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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