When the stock market goes down, I take the Warren Buffett approach!

It’s been a tumultuous few weeks for the stock markets on both sides of the pond, both FTSE 100 and S&P 500 well below the highs they set before 2026. Volatile markets can provide an opportunity for investors who are willing to see them in the right light and act accordingly. One such investor is Warren Buffett, who has lived through many bear markets in his decades of investing in the stock market.

In fact, I think that learning from Buffett’s method can be very helpful in times like now, when you want to build wealth.

To begin with, forget about the stock market completely. Instead, think about a business you know and understand. Warren Buffett always tries to stick with businesses he understands.

Ask yourself how likely the business is to be successful in the long term.

How big is its target market, what competitive advantages does it have – and is it likely to endure?

Then consider its economic model. Sometimes a big business with big sales can still lose money, so understanding the business model is important.

This process is how Buffett decides whether a firm is the type of large business he would like to own.

But Buffett isn’t just talking about big businesses. He talks about buying big businesses at attractive prices.

That is the most important difference. Even a very good business can make a poor investment if someone pays too much for their part in it.

Turbulent markets generally do not scare the Oracle of Omaha. If the fundamental value of a business whose shares a long-term investor remains the same, he doesn’t care if the stock market views them as low during periods of uncertainty.

But such times – like the one we are in now – can give the long-term investor an opportunity, if it enables them to buy a good business at an unusually good price.

For example, one sector that I think investors should consider is the home goods retailer. Dunelm (LSE: DNLM).

Dunelm’s share price is down 29% since the start of the year. That means it’s now trading at just 11 times, while offering a dividend yield of 5.7%.

In fact, although returns are not guaranteed, the expected medium to long-term yield is likely to be high, as Dunelm often uses surplus funds to fund special dividends.

Why is the share price falling?

Weak consumer confidence and an uncertain outlook for the property market threaten to eat into demand for home furnishings. Higher commodity costs due to rising oil prices could make imports more expensive for Dunelm, which eats into profits. Last month the company told investors that, “The customer environment is always challenging, with different business models“.

I see those as temporary challenges, however. Like Warren Buffett, however, I take a long-term approach to investing.

People will always buy household goods, even though demand may ebb and flow throughout the economic cycle. Dunelm has a proven, profitable business model.

Its many unique product lines help give it a competitive advantage, as do its brands and supermarkets. At its current price, I see it as a potential long-term purchase – along with other units in the current market!

The post When the stock market goes down, I take the approach of Warren Buffett! appeared first on The Motley Fool UK.

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C Ruane has no status in any of the mentioned categories. The Motley Fool UK has no position in any of the sectors mentioned. The opinions expressed on the companies mentioned in this article are those of the author, and therefore may differ from the official recommendations we make on our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that thinking from different perspectives makes us better investors.

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