BT (LSE: BT.A) shares have had a turbulent decade, but investors who took a punt on the struggling FTSE 100 telecoms giant a year ago have been handsomely rewarded.

The BT share price has jumped more than 44% over the past 12 months. Factor in a trailing dividend yield of 5.2%, and the total return approaches 50%.

Finally, it looks like the BT share price has broken loose of its shackles. And after stagnating for a while it’s suddenly on the move again, jumping 10.7% in the last month. It’s racing ahead of the FTSE 100 as a whole, which climbed just 2.4%.

Can this FTSE 100 recovery stock fly higher?

If an investor had put £10,000 into BT just one month ago, they’d have picked up 7,143 shares at around 140p each. At today’s price of 154.8p, those shares would now be worth £11,057.

BT paid a dividend of 2.4p per share on 5 February, but sadly, our investor won’t have received that. The stock went ex-dividend on 24 December. Otherwise they could have added another £171 to their total return.

Oh well, they can look forward to the next dividend, due on 10 September. So much for recent performance. As ever, the big question is what happens next?

BT has faced numerous challenges, including intense competition, regulatory scrutiny, and the enormous costs of rolling out full-fibre broadband. The company’s Openreach division is both a major asset and a potential burden, as it provides critical infrastructure but faces long-term revenue pressures.

Throw in long-standing problems such as its burdensome pension scheme and hefty net debt, and there have been good reasons not to invest in BT.

The group’s Q3 results, released on 30 January, showed adjusted EBITDA crept up just 2% year on year to £2.05bn. Revenue squeaked up a meagre 1% to £5.3bn. 

Management reaffirmed its commitment to cost savings and efficiency improvements, which could provide further benefits if executed well.

Still a generous yield

BT investors weren’t thrilled. The shares fell. On 18 February, broker Citi downgraded BT from Buy to Sell, slashing its price target from 200p to just 112p. It warned that Openreach’s revenues may decline and raised doubts over BT’s ambitious target of £3bn in normalised free cash flow by the end of the decade, projecting just £2.3bn.

So I’m quite impressed the BT shares climbed at all, let alone by so much.

BT remains risky but that’s still priced in, with the price-to-earnings (P/E) ratio still low at just 8.34. While Citi’s downgrade is a blow, other brokers remain more optimistic.

The 14 analysts offering one-year share price forecasts have produced a median target of just over 183p. If correct, that’s an increase of almost 20% from today. Combined with that yield, this would give investors a total return of 25%. 

It would mark another impressive year, if it happens.

With the shares rallying strongly, some investors may wonder if they’ve already missed the boat. I’m one of them. Especially with the group’s net debt of £20bn still dwarfing its £15bn market cap. Pension scheme contributions have helped drive it up.

I felt BT shares were due a bump, but I’ve missed out on the fun. I think I can find better value elsewhere on the FTSE 100 today, with fewer question marks.

Who wouldn’t fancy a second income? Especially one you don’t have to lift a finger to generate. It’s possible to get just that, by investing in FTSE 100 dividend shares. Two or four times a year they make regular cash payments to shareholders, who can do what they want with these payouts.

Typically, investors reinvest their dividends to buy more shares while of working age, then draw them as a passive retirement income after they retire.

If an investor had £2,000 to invest this March, and doesn’t need the money for at least five years (and ideally several decades), it should work much harder in shares than cash. 

FTSE 100 stocks build wealth slowly but steadily

Money invested in dividend stocks should grow over time and compound with every reinvested payout. However, investors must also anticipate plenty of volatility on the way. Share prices can fall as well as rise. Dividends can be cut at any time. The real benefits only shine through over time. Patience is required.

If an investor could generate an average total average return of 9% a year from dividends and share price growth, that initial £2,000 could potentially grow into £26,534 over 30 years. That’s a pretty handsome return, given the tiny initial stake. Investing £2k every year would deliver £297,150 after 30 years.

Somebody who invested £2k every month would end up with almost £3.6m! Not a bad target to aim for.

Let’s return to that one-off £2k. If it does grow to £26,534 and then generates a dividend yield of 6% a year, that would produce a passive income of £1,592 a year. Obviously, that’s nowhere near enough to live on in retirement, but it’s not bad from just one monthly investment.

One FTSE 100 stock that could potentially play a key role in this dividend growth strategy is British American Tobacco (LSE: BATS). It currently offers an impressive trailing dividend yield of 7.8%. That’s far higher than any savings account, and there’s also the potential for capital growth. In fact, the stock’s up 26% over the last year.

There are risks with investing in tobacco stocks, of course. Traditional cigarette sales are declining, and regulators continue to target the industry. Any investor considering this stock must take that into account.

The shares look good value

But British American Tobacco is adapting, expanding into vaping and other next-generation products. If it can maintain its market dominance while growing in these areas, it could remain a strong income stock for years to come.

Another attraction is its valuation. With a price-to-earnings (P/E) ratio of just 8.3, the stock looks cheap compared to many other FTSE 100 companies. I think it’s well worth considering as part of a balanced portfolio of 15-20 stocks, but not risk-free.

Investing always comes with uncertainty, but FTSE 100 dividend stocks have historically proven to be resilient wealth builders. And by focusing on companies with strong cash flows, solid dividend records, and reasonable valuations, an investor could set up a sustainable second income stream.

They should treat their £2k as the start. The trip to building wealth via dividend stocks is to begin as early as possible and stick at it. Starting in March, maybe?

BP’s (LSE: BP) share price failed to react positively yesterday (26 February) to the firm’s announcement of a strategic shift. This leaves the stock down 20% from its 12 April 12-month £5.40 traded high.

I was unsurprised by yesterday’s lack of movement because the idea was floated nearly two weeks ago. The stock jumped 7% on that day. That was despite poor Q4 and full-year 2024 results being released at the same time.

That said, I think further gains will come as the market sees the potential of the new strategy.

What does the strategy reset involve?

BP’s strategic shift involves reducing investment in low-carbon projects and increasing oil and gas production.

More specifically, it will cut its previously planned renewables funding by over $5bn (£3.9bn) to $1.5bn-$2bn a year. And it will raise its investments in oil and gas projects by around 20% to $10bn a year.

Consequently, the firm expects to increase its oil production to 2.3m-2.5m barrels per day (bpd) by 2030. Currently it produces around 1.1m bpd.

A key development in this context was the 25 February signing of a deal to develop four major Iraq oilfields. These are estimated to hold around 9bn barrels of oil that can be recovered at a cost of just $1-$2 a barrel. The current benchmark Brent oil price is $72 a barrel.

BP’s reset comes after activist US hedge fund Elliott Investment Management recently took a near-£4bn stake in the energy giant.

The fund wants the firm to unlock shareholder value sooner rather than later. And it sees oil and gas projects as a priority as prices are at relatively high historical levels.

As a result, BP is targeting 16%+ annual returns on capital employed by 2027.

Are the shares undervalued?

I think greater oil and gas production should enable BP to gradually reduce the valuation gap with its fossil-fuel-focused competitors. A risk here is government pressure for it to revert to its previous greener energy transition strategy.

However, consensus analysts’ forecasts now are that BP’s earnings will increase by a stunning 34.1% a year to end-2027. And it is this growth that ultimately powers a firm’s share price (and dividend) higher.

Right now, the firm looks extremely undervalued on its 0.5 price-to-sales (P/S) ratio against its peer group average of 1.8. This comprises Shell at 0.7, both ExxonMobil and Chevron at 1.4, and Saudi Aramco at 3.6.

The same is true of its 1.4 price-to-book ratio against a competitor group average of 2.3.

I ran a discounted cash flow (DCF) analysis to put these undervaluations into a share price context. This shows where any firm’s share price should be, based on future cash flow forecasts for it.

Using other analysts’ figures and my own, the DCF for BP shows the shares are 54% undervalued at £4.30.

Therefore, their fair value is technically £9.35, although market forces might push them lower or higher.

Will I buy more stock?

I think BP’s strategic reset should help it realise the very strong projected earnings growth forecasts. This in turn should drive its share price and dividend much higher in my view.

Therefore, I will be adding to my holding in the stock very soon.

FTSE investment manager abrdn (LSE: ABDN) remains one of my core passive income holdings.

These are stocks selected specifically for their ability to generate high dividend income. And they do so with minimal effort from me – hence the ‘passive’ label attached to such money.

What’s the current yield and future projections?

abrdn paid a total dividend last year of 14.6p a share. This gives a yield of 9.2% based on the current share price of £1.58.

It is useful to note for context that it has paid the same dividend since 2020. However, its yield has changed over the period in line with its share price moving up and down.

It is also apposite to know that analysts forecast the same dividend will be paid in each of the next three years.

How much passive income can be made?

‘Dividend compounding’ is a standard share investment tool involving the reinvestment of dividends back into the stock that paid them. I, along with many former investment professionals and private investors I know, always use this method to maximise our returns.

However, even without doing this, the income from abrdn shares is much higher than from a regular UK savings account.

Specifically, investors considering a holding of £11,000 (the average UK savings) in abrdn would make £1,012 in dividends in the first year. On the same average 9.2% yield this would rise to £10,120 after 10 years and to £30,360 after 30 years.

That said, £11,000 on the same 9.2% average yield – but with the dividends reinvested – would generate £16,506 after 10 years, not £10,120. And after 30 years on the same basis it would increase to £160,978 rather than£30,360.

Adding in the initial £11,000 investment and the abrdn holding would be worth £171,978 by then.

This would be paying £15,822 a year in dividend income by that point! But it is important to remember that none of this is guaranteed.

How does the business look?

A risk to abrdn’s outlook is the cut-throat competition in its business. Another is a further rise in the cost-of-living crisis that might cause customers to scale back their investment policies.

However, I think the firm’s current reorganisation strategy is progressing well. It is partly focused on reducing costs, mainly in middle management, which is always a good thing in my view. The other part is targeted at increasing profits for clients through improved product offerings.

H1 results saw an IFRS post-tax profit of £171m against a £145m loss in H1 2023. Over the same period, costs fell 13% year-on-year to £372m.

Its Q3 trading update showed assets under management increased 2% year on year – to £507bn.

Will I buy more of the stock?

I already have a sizeable holding in abrdn. However, given the positive way it is reorganising and its huge yield, I will be buying more shares very soon indeed.

Diageo (LSE: DGE) shares have taken a huge hit recently. Currently, they’re trading nearly 50% below their all-time highs.

Is there an investment opportunity here after this pullback? One company director seems to think so – he just bought more than £500k worth of the FTSE 100 stock.

The power of insider buying

Insider buying activity can provide valuable insights for regular investors. Because insiders are some of the most informed participants in the market.

These individuals tend to have far more information on their companies than the rest of us do. And if they’re buying company shares, it suggests that they believe the company is undervalued and that the share price is set to rise.

Of course, not every insider transaction is a valuable investment signal. Some trades are more informative than others.

Research shows that large purchases by top-level insiders tend to be the most informative. ‘Cluster buying’ (where multiple insiders are buying simultaneously) can also provide powerful investment insights.

A £500k buy

Going back to Diageo, the recent insider transaction looks interesting to me. Because we have a large trade from a very well placed individual.

The insider in focus is Dayalan Nagalan who is currently President, Africa as well as Chief Commercial Officer. On 14 February, he purchased 23,326 shares at a price of £21.44 per share.

This trade cost him a little over £500,000. That’s a large purchase by UK standards.

Beyond the size of the trade, a few things stand out to me here. One is that Nagalan is a member of Diageo’s Executive Committee (so he’s likely to have a good understanding of recent business trends).

Another is that he has a lot of experience at the company having previously served as Managing Director Great Britain, Ireland, and France and Managing Director Global Travel, among other roles. He should know the business very well.

Overall, I see this trade as quite bullish.

Should I buy more shares?

That said, I’m not going to rush out and buy more Diageo shares for my own portfolio on the back of this trade. I already have quite a large position here and I’d want to see the company’s performance improve before buying the stock again.

Recently, Diageo has been struggling due to lower levels of spending from consumers, changing attitudes towards alcohol, inventory problems, and elevated levels of debt on the balance sheet. All of these issues continue to be risks from an investment perspective, as do other issues such as weight-loss drugs and US tariffs.

I do believe this company has the ability to turn things around (and therefore could be worth considering as an investment today if one doesn’t have a position). After all, it owns some of the most well-known alcohol brands in the world such as Johnnie Walker, Guinness, and Tanqueray.

However, until the company starts to fire on all cylinders again, I’m going to put my money into other stocks. That’s because right now, there are plenty of other opportunities in the market.

The Aston Martin Lagonda (LSE: AML) share price is down a crushing 98% since the company floated in October 2018. That includes a fall on Wednesday (26 February) in response to 2024 results.

Scary statistic

Want to hear what might be the most shocking statistic so far? My Motley Fool colleague James Beard worked out that since flotation, Aston Martin has lost an average of £45,289 for every vehicle sold. He points out that it would have cost less to give every buyer £40,000 to buy a car somewhere else.

Prior to its current incarnation, previous versions of Aston Martin had gone bust seven times. At this rate, the fear is the eighth might not be too far ahead. It all hinges on whether this rate of loss can be stemmed. And that does appear to be the company’s focus right now.

This time, the company said it “expects to make significant improvements across all key financial performance metrics in 2025, compared to the prior year“. It’s said similar things before. But if this really is the time it pulls it off, we could see “positive adjusted EBIT in FY 2025 and free cash flow in H2 2025“.

By around 2027 to 2028, the board puts its approximate guidance at revenue of £2.5bn, with adjusted EBIT of £400m and a net leverage ratio below 1 times.

Possible outcomes

At 30 December 2024, the balance sheet showed cash of £360m, with available facilities taking liquidity up to £514m. That sounds like enough to keep things going until the time the board thinks it can turn things round.

But the cash was boosted by approximately £235m in private debt placings in August and November last year. And those helped push year-end net debt as high as £1.16bn. That’s more than 40% higher than last year’s £814m.

So, that’s one possible outcome. Aston Martin might manage to hit those targets and achieve positive cash flow by the end of 2025. If that happens, I could see a lot of investors heaving sighs of relief and pushing their buy buttons.

With the share price so low, there seems to be one other clear possibility. Maybe we might see a buyout attempt this year. Especially if it looks like wheels are turning in the right direction as we get close to trading updates. I imagine a few global auto makers could like the idea of adding the Aston Martin marque to their stable. There’s value in a name.

Worst outcome?

If neither of these things happen, the positive noises are delayed another year, and fresh debt or equity funding isn’t available? It really might be bust number eight.

But then, I reckon a bold investor who takes a risk might do well if we really do see some profit. And I don’t think it would need a lot of profit to trigger a sentiment turnaround.

It’s too much risk to fit my strategy. But I might pop round and ask for £40,000 and threaten to buy a car if I don’t get it.

The Stocks and Shares ISA has, since its introduction in 1999, provided a vital tool in helping Brits to create wealth for retirement. Their importance could rise still further if — as expected — major changes are announced to the Cash ISA next month.

Rumour has it the Treasury will cut annual allowances on these cash products to boost inflows into their share-based equivalents. I’m not totally opposed to this idea, as history shows that investing in equities typically delivers far better returns.

With this in mind, here’s how much money a 40-year-old could have by retirement if they invested £500 in a Stocks and Shares ISA.

A 9.64% return

Unlike with a Cash ISA, users of these products don’t enjoy the luxury of a guaranteed return. In fact, returns can fluctuate wildly according to stock market conditions. In theory, their value can also decline all the way to zero.

Yet over the long term, Stocks and Shares ISAs continue to provide greater gains that cash-based products. Past performance doesn’t always provide a reliable guide to the future. But it is certainly worth paying serious attention to.

According to Moneyfarm, the average annual return on a Stocks and Shares ISA over the last decade is 9.64%. That’s significantly higher than the 1.21% that Cash ISAs have provided.

If this continues, someone who invested £500 a month between 40 and the retirement age of 68 would have a healthy retirement fund of £853,217.

Conversely, that amount put into a low-yielding Cash ISA would have turned into just £199,846.

It’s possible that cash savers will get an improved return over the next 10 years, as the era of ultra-low interest (and therefore savings) rates appears over. Yet it’s still likely, in my opinion, that Stocks and Shares ISAs will provide far better gains.

Taking the right path

With all capital gains and dividend income tax free, a Stocks and Shares ISA can be a far more effective way to build wealth than a general investment account (GIA). Yet investing without a sound strategy can result in an annual return far below than 9.64% average.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

A key tool to target high annual returns is to build a diversified portfolio of assets. Owning a range of shares allows risk to be effectively spread, and for individuals to capture a variety of growth and income opportunities.

Investors can also buy investment trusts or exchange-traded funds (ETFs) to achieve this diversification effect. The Polar Capital Technology Trust (LSE:PCT) is one such security I think is worth a close look.

On one hand, its narrow focus on tech shares can leave it vulnerable during economic downturns. But over the long term, it has the potential to surge in value thanks to fast-growing segments like artificial intelligence (AI), quantum computing, robotics, and cloud infrastructure.

With holdings in more than 100 companies (including sector giants Nvidia, Microsoft, and Apple), it provides a multitude of ways for investors to profit from the ongoing digital revolution. Since 2015, it’s delivered an average annual return of roughly 20.6%.

Tesla (NASDAQ:TSLA) shares continue to plunge at an alarming rate. The automaker’s down 20% in the year to date, and threatening to retrace sharply below the technically- and psychologically-critical $300 per share marker.

It’s led me to wonder how the Tesla share price now looks from a GARP (Growth at a Reasonable Price) perspective.

Investing in growth shares often involves paying a premium for the possibility of surging profits and therefore substantial capital gains. The GARP strategy tries to avoid this by finding reasonably priced shares using the price-to-earnings growth (PEG) ratio.

Tesla shares are famous for being expensive. But how do they now look following recent price weakness?

Test 1

As a GARP investor, I’m always seeking a forward PEG ratio of 1 or less. This involves dividing the prospective price-to-earnings (P/E) multiple by predicted earnings growth.

Here’s how Tesla shares stack up:

	2025	2026
Earnings per share (EPS) growth	24%	33%
P/E ratio	109.3	84.2
PEG ratio	4.6	2.6

As you can see, the electric vehicle (EV) maker doesn’t score well.

Annual earnings are tipped to soar by around a quarter year on year in 2025, and then by around a third next year. However, Tesla’s famously high P/E ratios means it still looks super expensive on a GARP basis, even if the PEG ratio does fall sharply for next year.

Test 2

I’m not prepared to write Tesla shares off as prohibitively expensive just yet however. I also want to see how they shape up against some of the EV industry’s other big beasts.

Here’s what I found, based on their estimated earnings for the current financial year:

Company	P/E ratio	PEG ratio
BYD	21.4	0.8
Xiaomi	45.6	1.2
Li Auto	18.1	0.4
Rivian	– 3.3	0.1
NIO	– 4.2	0.2

Some negative P/E ratios muddy the waters a little. Rivian and NIO are tipped to remain loss-making in 2025, though predictions of bottom-line improvement leave them with positive PEG ratios.

As you can see, each of the carmakers described boasts a PEG ratio far lower than Tesla’s. In fact, each of them (bar Xiaomi) carries a PEG ratio below 1, indicating they’re undervalued at current prices.

Time to consider buying or avoiding?

So there you have it. As a potential GARP investment, Tesla shares miss the mark by a huge margin.

However, this doesn’t necessarily mean the carmaker’s a stock to avoid. Tesla’s not just about EVs after all, and has significant growth potential elsewhere (think self-driving cars, robots and artificial intelligence (AI)).

But at the moment, EVs are the Tesla’s ‘meat and potatoes’, so to speak. And to me, the dangers here are growing at alarming speed.

Competition’s rapidly growing, with China’s manufacturers in particular making rapid inroads. BYD’s sales, for instance, rocketed 41% in 2024, to 1.8m units, while Tesla’s dipped slightly to around the same level.

On top of this, Tesla’s brand power’s cratering as founder Elon Musk flexes his political muscles. The company’s European sales plummeted 45% year on year in January, which analysts have attributed to Musk’s involvement in President Trump’s controversial administration.

Tesla also faces fresh cost and supply chain pressures should global trade wars heat up.

Given its high valuation and mounting problems, I think Tesla’s a share investors should consider avoiding right now.

As of the most recent estimates, there are approximately 41,000 to 45,000 publicly listed companies globally. It stands to reason that some of our free-site writers have been buying shares outside of the UK for their portfolios, too…

AngloGold Ashanti

What it does: AngloGold Ashanti is a global gold mining company with projects in nine countries, across four continents.

By Andrew Mackie. When it was announced at the back end of last year that AngloGold Ashanti (NYSE: AU) had agreed to buy UK-listed Centamin, then I began undertaking research into the miner to see if it was a good fit for my Stocks and Shares portfolio.

One fact that immediately struck me was its low valuation compared to many of its American peers. In 2023, it restructured the business moving its primary listing from South Africa to the New York Stock Exchange. Over time, it hopes this move will result in a fundamental revaluation.

I believe that the acquisition of the Sukari gold mine, a tier one asset, could very well turn out to be a pivotal strategic move. As gold prices continue to edge closer to $3,000, its increased gold production and expected fall in all-in sustaining cost (AISC) will result in significant margin improvement.

Cost inflation remains one of the biggest risks for the industry as a whole but is particularly acute at AngloGold. One of its mines in Brazil was recently placed on “care and maintenance” given that its AISC was well above the price of gold.

Nevertheless, with government deficit spiralling out of control in the US and a new Administration eager to see it cut, I believe gold prices will continue to rise. Trading at a forward P/E of just over seven, I decided to add some of its shares to my portfolio in early 2025.

Andrew Mackie owns shares in AngloGold Ashanti.

Nu Holdings

What it does: Nu Holdings is the parent company of Nubank, the leading digital bank in Latin America.

By Ben McPoland. I recently bought more shares in Nu Holdings (NYSE: NU). The branchless bank continues to grow like a weed across Latin America. It now has over 100m customers in Brazil, a staggering 57% of the adult population!

However, it’s also growing rapidly in Mexico, where it recently surpassed 10m customers (around 12% of the adult population). Management believes the long-term opportunity in Mexico is massive, while its newest market is Colombia.

Nubank is offering various services and credit to the continent’s massive underbanked population via their smartphones. While that’s driving enormous growth, it also exposes the firm to a rise in non-performing loans. This is certainly worth bearing in mind.

It is perhaps such risks that explain the relatively low valuation here. The stock is trading at just 16 times next year’s forecast earnings. For perhaps the fastest-growing financial company on earth, that looks like a bargain. 

Interestingly, Nu Holdings is considering moving its legal domicile to the UK ahead of a global expansion that may include the US within the next couple of years.

Ben McPoland owns shares in Nu Holdings.

Ørsted

What it does: Danish energy supplier and largest developer of offshore wind power by number of built offshore wind farms.

By Mark Hartley. I bought shares in Ørsted (CPSE:ORSTED) because I have a keen interest in renewable energy. The company has suffered significant challenges in the past five years, leading to a 55% drop in value. The cancellation of its Ocean Wind 1 and 2 projects off New Jersey led to $5.6bn in loss in 2023. As a result, earnings per share fell to a loss of 50 DKK (£6.28) that year, forcing it to cancel all dividends.

In Q3 2024, earnings recovered to 5bn DKK (£570m), prompting analysts to estimate a final year EPS of 22 DKK (£2.49). But renewable energy remains a high-risk industry, prone to losses from unpredictable weather events and regulatory changes.

Despite its risks, I think Ørsted stands a good chance of turning a profit while helping drive cleaner energy production. The average 12-month price target of 420 DKK represents growth of 34% from today’s price.

Mark David Hartley owns shares in Ørsted.

Palantir Technologies

What it does: Palantir’s software specialises in big data analytics, with both government and corporate clients.

By Muhammad Cheema. Palantir (NASDAQ:PLTR) has been leveraging its expertise in artificial intelligence (AI) to generate strong growth.

Among its corporate clients, its Artificial Intelligence Platform (AIP) has been a big hit. AIP allows users to integrate AI models directly into their platforms, taking care of tasks employees usually do.

As a result, the company has seen its revenue from US commercial customers rise by 54% in its latest quarterly results year on year. Its customer count also grew by 39%, and in the last quarter alone the company closed 104 deals worth over $1m each.

My biggest concern with the company is its lofty valuation. With a price-to-sale (P/S) ratio of 72, any weakness it displays could send its share price off a cliff. For example, more companies are entering the AI space. Therefore, it’s not highly unlikely a larger competitor in the space will encroach on its business.

However, as enthusiasm for Palantir’s software is increasing, I remain convinced it will continue its strong growth.

Muhammad Cheema owns shares in Palantir Technologies.

Warren Buffett loves index funds. He famously said that, upon his passing, he wants the bulk of his assets to be put into low-fee index funds for his wife. 

Little work, little knowledge needed, and you get the average return of the market. That’s the basic idea. For someone like his wife, with little knowledge of the markets, it’s simple and time-tested strategy to make your money work for you.

But it’s not how he did it himself. Buffett didn’t rise from a relatively modest background to multi-billionaire status through index funds. Granted, they didn’t exist in those days. The earliest of these funds date back to the 1970s. 

Big returns

But even today, Buffett prefers active investment over passive investment. Why? Because of the chance of market-beating returns. His holding company Berkshire Hathaway has netted near 20% returns for over half a century. That sounds like it’s worth the effort, for some people at least.

Where would Buffett get started today? He’d probably look at beaten down stocks, fallen share prices and sectors that have suffered a bit of a tailspin. He’d look for cheap stocks, basically. 

In his own words, “Most people get interested in stocks when everyone else is”.

It’s human nature to follow a crowd and in many walks of life it’s a material advantage. But in the stock market, following what everyone else is doing can be like the lemmings walking off the cliff. Not a good idea. 

Expanding on the above quote, Buffett says, “The time to get interested is when no one else is. You can’t buy what is popular and do well”.

Plenty of UK stocks have shown this to be true of late. Airlines took a hit after Covid. Was there an opportunity there? I’d say so. The businesses weren’t harmed outside of an increase in supply costs. What’s more, flying is more popular than ever. 

Today’s opportunities

British Airways owner IAG has reaped the rewards, its shares doubling in value over the last year or so.

Buffett isn’t a fan of airlines for their unpredictability but I think he’d accept there was value there. 

Is there anything like that today? One stock that stands out to me in this regard is Diageo (LSE: DGE). The drinks seller has seen a slump in sales while navigating a leadership change. The shares have lost nearly half their value in the last three years or so. All this while its flagship brand Guinness is booming so much the firm is facing calls to divest it into a FTSE 100 business all of its own. 

Coincidentally, Warren owns this stock already, the only British company in the Berkshire portfolio. I own it too and am happy with the size of my position but any further drop in price and I may have to increase that. Buy low, sell high, as they say. Well, this might be a buy low moment.