August 2024 has already been a volatile month for ASX shares, and we're not even halfway through the reporting season yet.
Between 1 August and 5 August, the S&P/ASX 200 Index (ASX: XJO) dropped 5.7%. I think it's useful to consider what legendary investor Warren Buffett would do during times like this.
Buffett has built Berkshire Hathaway into one of the world's largest businesses that is invested in both listed shares and private businesses. He has expertly chosen businesses like American Express, Coca Cola and Apple at the right times and at the right price.
Warren Buffett is not known for investing in ASX shares. He has typically stuck to what he knows – US businesses. But, if he were Australian, would he buy ASX shares when they were sold off?
Let's look at what I think are some of his most useful pieces of advice.
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Warren Buffett's wise advice
One of the most famous sayings from Buffett has been:
Be fearful when others are greedy and greedy when others are fearful.
The ASX share market doesn't sell off for no reason – there may be a legitimate reason to be afraid. However, it's during those periods of time that we may see the most appealing share prices.
Warren Buffett also said in 1997:
If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period?
Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall.
Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.
Seeing the stock market dive may be unsettling for people who are planning to sell, but I don't think volatility needs to be seen as a bad thing for investors who are planning to keep buying assets.
Which ASX shares would he buy?
I think Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) is the closest thing to Berkshire Hathaway on the ASX. Looking at the Berkshire Hathaway portfolio and some of its subsidiaries, similar businesses on the ASX are Brickworks Limited (ASX: BKW) (building products) and Nick Scali Limited (ASX: NCK) (furniture). Both are high-quality businesses that could fit right in.
I also believe Bunnings and Kmart owner Wesfarmers Ltd (ASX: WES) is displaying the high-quality, consumer-centric focus that Buffett usually likes.
Buffett has also talked about his preference for companies with strong market positions, and even monopolistic positions. That's why I think Warren Buffett would like the look of energy infrastructure business APA Group (ASX: APA) and dominant telco Telstra Group Ltd (ASX: TLS).
So, there are a number of quality ASX shares that I think an Australian-based Warren Buffett would like, and I definitely believe he'd want to invest during heavy market volatility.
