I'd listen to Warren Buffett's advice to buy undervalued ASX shares today

No doubt, there are plenty of undervalued shares trading on the ASX as we speak.

Value spelt out in different colours with magnifying glasses.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Billionaire and investing extraordinaire Warren Buffett has made a name as the globe's best value investor  
  • The 'Oracle of Omaha' makes a point of buying into quality companies at good prices, and he has beaten the market by doing so
  • I'd heed three pieces of Buffett wisdom when hunting for undervalued shares

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.

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.

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

More on Share Market News

Woman holding gold bar and cheering.
Gold

Why Macquarie expects this surging ASX 200 gold stock could leap another 40%

Macquarie forecasts another year of strong outperformance from this fast-rising ASX 200 gold miner.

Read more »

A young woman looks at here phone as she strides out in an airport dragging her wheelie bag behind her and smiling widely.
Broker Notes

Macquarie tips 15% upside for this ASX 200 industrials stock

Is this transportation business preparing for take-off?

Read more »

Red buy button on an apple keyboard with a finger on it representing asx tech shares to buy today
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

Ten happy friends leaping in the air outdoors.
Share Gainers

Here are the top 10 ASX 200 shares today

It was another momentous session for ASX shares this Friday.

Read more »

Overjoyed man celebrating success with yes gesture after getting some good news on mobile.
Share Gainers

Why BHP, Catalyst Metals, Mesoblast, and Pilbara Minerals shares are shooting higher

These shares are ending the week with a bang. But why?

Read more »

Disappointed man with his head on his hand looking at a falling share price his a laptop.
Share Fallers

Why 29Metals, Atlas Arteria, DroneShield, and Yancoal shares are falling today

Let's see why these shares are ending the week in the red.

Read more »

Doctor doing a telemedicine using laptop at a medical clinic
Healthcare Shares

The Mesoblast share price just rocketed 38%! Here's why

ASX investors just sent the Mesoblast share price up 38%. But why?

Read more »

Stock market chart in green with a rising arrow symbolising a rising share price.
Record Highs

Big ASX 200 news! Market hits 8,700-point record high

It's a historic day for the ASX.

Read more »