Why I’d follow Warren Buffett and capitalise on once-in-a-lifetime buying opportunities

Warren Buffett has a long track record of taking advantage of once-in-a-lifetime buying opportunities. He has frequently been a buyer of stocks when other investors are selling. This has allowed him to purchase high-quality businesses when they are trading at discounted prices.

By following his strategy, you could generate relatively high returns in the long run. With investor fears still high after the stock market crash, now could be the right time to build a portfolio of stocks while they trade at attractive prices.

Rare buying opportunities

Warren Buffett’s investing career may have spanned many decades, but he has had relatively few opportunities to buy stocks at extremely cheap prices. That situation usually only occurs when investor sentiment is exceptionally weak, which often coincides with periods of economic uncertainty.

Since those instances are relatively few and far between, investors are unlikely to have a plethora of chances to buy a range of high-quality companies at low prices during their lifetimes. Therefore, it is important to use them to your advantage when they occur. Doing so may enable you to obtain a market-beating return in the long run that makes a positive impact on your financial situation.

Warren Buffett’s long-term focus

Of course, Warren Buffett does not expect to make short-term gains when buying any stock. History shows that it can take many months, or even years, for the stock market to recover from its declines. For example, the most recent global recession (excluding this year) occurred during the global financial crisis. While stock indexes such as the FTSE 100 Index (FTSE: UKX) declined by over 50%, they recovered in the following years to trade at new record highs.

With the stock market having always recovered from its lows, buying during a period of economic weakness has been a sound plan for those investors with long time horizons. As the economic outlook improves, the financial performances of companies does likewise. This encourages investors to take more risks, which supports the recovery and subsequent bull market.

Today’s buying opportunities

The recent stock market crash could mean there are buying opportunities for investors who wish to follow a strategy similar to that used by Warren Buffett. Risks such as the ongoing coronavirus pandemic and political uncertainty in North America and Europe mean that investor sentiment towards a wide range of sectors is weak. This could mean there are a number of high-quality companies trading at low prices that offer long-term growth potential.

Of course, diversifying across sectors and geographies is important in an uncertain economic period. This reduces overall risks, and could improve your long-term return prospects as a result of having exposure to a wider range of growth opportunities. The end result could be a growing portfolio that benefits from having taken advantage of low prices during a weak period for the stock market.

More reading

• How to make $50,000 of passive income with ASX dividends
• Where I’d invest $10,000 in ASX shares for growth
• These were the worst performing shares on the ASX 200 last week
• These were the best performing shares on the ASX 200 last week
• 2 ASX shares I plan to hold til I’m 100

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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