Warren Buffett is one of the world's greatest investors, perhaps the best ever. As such, I'm using one of his methods to hopefully improve my returns with ASX shares.
Berkshire Hathaway has become one of the world's biggest businesses thanks to Warren Buffett's stewardship and his ability to choose companies that have strong outlooks (at the time), such as Apple, Coca-Cola and American Express.
There are several factors that helped his investments do so well. I think a key factor of Buffett's success is his psychology about staying calm when others are panicking, and using times of market distress to invest.
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Be greedy and fearful
One of my favourite pieces of advice from Warren Buffet is his incredibly simple saying:
Be fearful when others are greedy and greedy when others are fearful.
It sounds easy, but of course, there's a lot more to it than that.
When share prices sink across a sector, or the whole market, does that make you want to sell? I think, generally, that's the best time to be buying because that's when share prices are at their lowest.
Share prices don't just fall for no reason – something has to worry investors. Those fears are usually overblown, or the problem sorts itself out quite quickly.
Warren Buffett's advice is also very applicable about being fearful. I wouldn't invest in something just because it is rising. Having a fear of missing out (FOMO) could mean overpaying for an investment.
Opportunities keep coming along. Sometimes a cyclical industry will hit a low, and sometimes investors indiscriminately sell and create opportunities for everyone.
How the Warren Buffett method is supercharging my returns
Most of my portfolio is allocated to ASX shares that I hope to own forever, such as Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).
But, there are other ASX shares I bought in the recent market decline in October and November which may only be holdings for a few years, but they nonetheless look like very good opportunities.
It's very lucky that many of the share prices have gone up so much. I'd have been happy if it took two years rather than two to three months. But, the most important thing, in my mind, was that I chose to invest at that time of lower prices and heightened fear.
For example, my investment account says my Temple & Webster Group Ltd (ASX: TPW) shares are up 57%, my Pinnacle Investment Management Group Ltd (ASX: PNI) shares are up 28%, my Lovisa Holdings Ltd (ASX: LOV) shares are up 30% and my Elders Ltd (ASX: ELD) shares are up 17%.
Share prices won't always be regularly attractive, so I want to grab them with both hands when they're there.
These returns may disappear if the market goes through a sizeable decline, though hopefully it would just be a short-term drop.
But, I did decide to take profit off the table with a fund manager from one investment, Centuria Capital Group (ASX: CNI). I still think there's plenty of upside left, but the 34% return in less than two months was good enough for me.
I'm happy to hold cash for a little while until the next opportunity because one can earn at least a 5% annual interest rate right now.
I intend to continue with the Warren Buffett method of being greedy when others are fearful because it can really help supercharge my ASX share returns.
