Volatile markets can be challenging. As an investor, I know it can be difficult to hold on to investments when market volatility causes share prices to drop. But selling investments in a downturn would be the worst thing that I could do for my investing goals. With that in mind, here are five pieces of advice from Berkshire Hathaway Chairman Warren Buffett that I use to help me hold on when market volatility makes selling tempting.

1. Buy at the right price

Buffett’s most important advice is to invest in stocks when they trade at a discount to their intrinsic value. If I buy a stock above its intrinsic value, then I have no reason to think that someone should ever pay more for it than I paid. That makes it hard to hold onto the stock when market volatility is high and prices fall. If I buy at a discount to intrinsic value, though, I can be confident that I’ve made a good investment that I can hold onto for the long term.

2. Think like a business owner

Buffett also advises focusing on owning businesses, rather than stocks. In other words, I should look to make investments based on what I think the business will produce, not what the stock price will be. Following this advice helps me cope with market volatility. A short-term change in share prices doesn’t change what the underlying business is producing. So if my investment thesis is based on the business, not the stock price, it isn’t affected by market volatility.

3. Know what I own

Staying within what Buffett calls my circle of competence makes it easier for me to navigate market volatility. It’s important for me to invest only in things where I understand the economics of the business and the the industry that it’s in. When the price of something I own drops sharply, it’s a sign that the market disagrees with me about its intrinsic value. When this happens, it’s important for me to be confident that it’s a good investment and I can only be confident of this when I’m investing in something that I can understand. 

4. Delay gratification

According to Buffett, markets are much more predictable over a long period of time than over a short one. When I invest, I do so with an anticipation of where the business will be 10, 20, or 30 years in the future. Market volatility might cause anything to happen to stock prices in the short term. But keeping in mind the fact that short-term movements are not part of my investing thesis helps me to not worry about price fluctuations brought on by market volatility.

5. Focus on what I can control

Market volatility is not something that is under my control. I can’t make stock prices go up or down. When markets are volatile, I find it helpful to think about Buffett’s advice for inflationary periods. Buffett advises that the best thing to do when inflation is high is to concentrate on my own earnings power. With that in mind, I try to focus on maximising my income and keeping my expenses under control, instead of looking at how my investments are performing when market volatility is high.

Stephen Wright owns Berkshire Hathaway (B shares). The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Today has seen dramatic movements on stock markets, with some shares tumbling. Evraz is down 31% and Ferrexpo 35%, but even less exotic shares have suffered albeit on a smaller scale. In this volatile market, I see plenty of UK shares to buy now for my portfolio and hold for the coming years.

If I wanted to put £20,000 into the UK stock market right now, I would spread it evenly across five growth-focussed picks and five income-earners.

Growth on sale

I reckon a number of companies with solid growth opportunities offer attractive prices currently. These include digital media agency group S4 Capital, trading lower than a year ago despite booming revenue. Growth could add costs that hurt profitability, though. I have also been buying boohoo, down almost 80% in a year. The growing, profitable online retailer is seeing inflation eat into profits, but I like its long-term prospects.

After it has headed back to penny share territory today I would also add Rolls-Royce to my portfolio. Subdued demand for civil aviation could hurt profits in the short term. But for now at least, the company has returned to profit – and I expect aviation demand to grow strongly in the next decade.

Mirror publisher Reach has lost half its value since August and is down 8% over the past year. But the group’s revenue has actually been growing, modestly. That is driven by strong growth in its digital platforms, which I think could continue in coming years. One risk is declining profit margins as digital is often less profitable than print media.

My final growth choice would be JD Sports. The company’s most recent results were its best ever, yet the shares fell 11% over the past year. I see continued opportunities for strong growth overseas, with a risk that local competitors could push down profit margins.

Dividend shares to buy now

Turning to income, I would buy both Imperial Brands and British American Tobacco. Declining cigarette volumes threaten both revenues and profits, but the companies have shown the power of their brands to support price increases. They are also building new revenue streams. Right now they yield 6.6% and 8.3% respectively.

I would also pick two financial services shares. Asset manager M&G, with its yield of 8.9%, would hopefully earn me around £178 per year in dividends for my £2,000 investment. Volatile markets could lead clients to withdraw funds, hurting profits. But the company’s large size and established reputation give me confidence for the long term. I would also buy insurer Direct Line for its 7.7% yield. Payouts for storms could hurt profits. But in the long term I think the company’s brand and the attractive economics of the insurance market should help it prosper.

Finally I would buy Income and Growth Venture Capital Trust. The trust invests in early stage companies, so backing the wrong ones could hurt profits. But as the yield shows, the trust has spotted some real winners. Its dividend tends to move around, but the current 9.6% yield looks tasty to me.

UK shares to buy now

Investing £2,000 in each of these 10 shares would hopefully earn me almost £900 a year in dividend income as well as exposing me to some interesting growth stories. Why panic in turbulent markets? I would rather take the opportunity to invest now and hopefully reap the rewards for years to come.

Christopher Ruane owns shares in British American Tobacco, Imperial Brands, JD Sports and boohoo group. The Motley Fool UK has recommended British American Tobacco, Imperial Brands, S4 Capital and boohoo group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The Lloyds Bank (LSE: LLOY) share price is up over 30% in a year. That in itself was reason for me to consider buying the stock. It was hardly the only reason, though. I think 2022 is going to be the year for the FTSE 100 stocks that were so badly impacted by the pandemic, they have yet to catch up. Think of segments like travel, hospitality, and, of course, banks. 

Profits soar

Even with all its increase in the past year, Lloyds Bank is still trading around 15% below those pre-pandemic levels. And this is at a time when the winds are really turning in its favour. Consider its latest results released earlier today. The company has reported a massive 324% increase in post-tax profits. Admittedly, much of this is due to an impairment credit as opposed to a significant impairment charge set aside last year, now that the worst of the pandemic is behind us. 

However, even if I consider profits before accounting for impairment charge or credit, the bank is still slightly ahead this year compared to 2020. This is because of higher net interest income, which is quite likely rising as the macroeconomic environment becomes healthier. Also, interest rates are rising. The bank’s net interest margin has risen by two basis points (bps) in 2021 from the year before. It is expected to rise even further, by six bps in the next year. In other words, it is possible that its earnings will continue to improve even without the help of the impairments head. 

Lloyds Bank share price dips

Yet, the FTSE 100 bank’s share price continues to be relatively low. This is especially true today, when Russia has invaded Ukraine, leading to a market correction. I think the true impact of the bank’s results on the price, for this reason, has also not surfaced. As I write, its share price has fallen to 47p, which translates to a price-to-earnings (P/E) ratio of six times. This is just a bit ahead of the Barclays P/E at 5.3 times. But both of them look like good buys to me for this reason.

Macro-positives for the FTSE 100 stock

I particularly like the post-Brexit context in which Lloyds Bank operates. The brakes have been slammed hard on growth for the UK and its stock markets for a long time, first because of the Brexit limbo and then the pandemic. Now both are, hopefully, out of the picture. Inflation is of course a key concern for 2022. If it continues to rise, which is possible now that oil has touched $100 a barrel, it is bad news for the global economy. And the bank, being a cyclical stock, is very likely to be impacted by it. But for now, inflation is actually a positive for Lloyds, sending interest rates higher and quite likely increasing its income. It is for these reasons that I bought Lloyds Bank shares. 

Manika Premsingh owns Lloyds Bank. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Key points

• Warren Buffett uses compounding earnings growth and P/E ratios to find the best stocks
• Central Asia Metals has solid earnings growth
• With a lower trailing P/E ratio than a major competitor, the shares may be cheap 

Warren Buffett is considered by many as the most successful investor of all time. Armed with a long-term view on the market, he has often said that time is the biggest barrier to amassing a fortune. Indeed, it is a fact that Buffett acquired 99% of his $114bn after the age of 50. I’m now looking at two techniques used by Buffett: price-to-earnings (P/E) ratios and compounding earnings growth. This will help me to better understand Central Asia Metals (LSE: CAML), a copper mining firm operating in Kazakhstan. Let’s take a closer look.

What does Warren Buffett look for?

I have previously covered the process of how to calculate compounding annual growth of earnings-per-share (EPS). As a brief reminder, it indicates the constant rate of return over a given period. Indeed, many of Warren Buffett’s biggest holdings display strong compounding earnings growth. McDonald’s, for instance, has a compounding annual EPS growth rate of nearly 3% for the calendar years 2016 to 2020.

Buffett is also interested in the proportion of these earnings that is kept within the firm, instead of being paid as a dividend. If these ‘retained earnings’ are being put to good use, he sees it as an indication that the management is competent in growing the business.  

In 2008, Warren Buffet wrote “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down”. Indeed, we may use the important P/E ratio metric for gauging the cheapness of a company. It involves dividing the share price by its previous or forecast earnings. This gives us the trailing or forward P/E ratio, respectively.

Why Central Asia Metals fits the bill  

Based on its earnings data, Central Asia Metals has a compounding annual EPS growth rate of just over 1%. While this is far from heart-stopping, it is consistent. I view this as a strength, as the company is delivering growth for its shareholders year in, year out. It is also possible, however, that I could find other stocks with better earnings growth, like Polymetal International.

Furthermore, the business has an earnings retention rate of 41%. In the 2020 calendar year, this equated to $278m and the firm is on the lookout for more mining opportunities. CEO Nigel Robinson has stated that a transaction may take place “within the next year or two”. This is an indication that the management is actively seeking growth opportunities. This is something Warren Buffett would be pleased to see, I think.

Finally, the business may be cheap at current levels. Indeed, it has a trailing P/E ratio of 9.87. This is lower than rival copper miner Antofagasta, which registers 14.6.

By following Warren Buffett’s central principles, I think I’ve found an exciting growth stock that I’ll buy and hold for the long term. It has solid earnings growth and might be a bargain. I will be purchasing shares in the company without delay.    

Andrew Woods has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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FTSE 100 miner Rio Tinto (LSE:RIO) announced a record dividend of £12bn. The recent commodity price boom, driven by a surge in popularity of battery metals and rising crude oil prices have led to bumper results for some of the top global miners. Earlier this month, BHP declared a massive US$7.6bn interim dividend and UK miner Antofagasta also announced a bumper $1.4bn payout. On the back of this miner boom and sky-high yield of 13.5%, are Rio Tinto shares the best FTSE 100 investment for me right now? Let’s find out.

Reasons behind the dividend hike

Rio is the world’s 114th largest public listed company and has been a FTSE 100 dividend stalwart for several years now. In the midst of rising inflation in the UK, many investors have turned to Rio shares to counter some budget pressures, and for a good reason.

In 2021, high demand for iron ore in China drove Rio Tinto’s sales and allowed the miner to record profits of $21.4b. This marked a 72% jump in revenue from 2020, the biggest surge in the firm’s history. A post-tax profit of $13bn prompted the board to release a total dividend of $10.4 per share, which included a special dividend of $2.47 per share. Rio’s total dividend is now 87% higher than last year.

Should I buy?

My colleague Christopher Ruane argued that the cyclical nature of the mining industry means that this strong period of demand will cool down. And when this happens, Rio might be forced to cut dividends. However, I think that the last two years have completely shaken up most traditionally cyclical sectors. For example, the notoriously cyclical UK housing industry is riding a decade-long boom and analysts predicted a crash in early 2021. But driven by the increased demand, sales figures and new home prices have constantly been close to all-time highs.

Also, given the global political climate, defence spending has been increasing steadily over the last decade. Even during the coronavirus’s peak in 2021, several prominent economies raised defence spending. China increased its defence budget by 6.8% to 1.35trn yuan (US$209bn) in 2021. The Stockholm International Peace Research Institute’s report showed that global military expenditure reached US$1.98trn in 2020, 2.6% higher than 2019.

And military development is a commodity-heavy venture that requires metals, fuel, and gold. Increased military spending over the next decade could support the commodity market. Although the sky high crude oil prices may cool down in the short term, I think the current volatility in the market will boost commodities for the foreseeable future.

Concerns and verdict

Analysts expect the mass adoption of alternatives like lithium to curb the demand for traditional metals. But creating a supply-demand balance for new commodities could take years of R&D and lobbying. Also, geopolitical tensions could result in trade restrictions. And the commodity market has been fluctuating a lot in the past year. Prices in the current climate could come tumbling down.

Although this is a huge risk, Rio’s board expects steady growth in 2022 as well. The company is diversifying into battery metals, including lithium. Although I do not expect the current 13.5% yield to continue, I think the mining giant can maintain an above-average yield, which is why I am considering Rio Tinto shares for my portfolio right now.

Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Growth shares have had a tough time so far in 2022, with many tumbling. There could be worse falls yet to come. But I am not waiting to try and time the market. I am already taking advantage of what I see as attractive prices for some fast-growing companies I think have strong future prospects. One UK growth share has collapsed 77% in the past year – and I am buying.

Growing pains

The share in question is online retailer boohoo (LSE: BOO). It has all the hallmarks of a classic growth share. The market in which it operates is expected to keep increasing in size. Boohoo has scaled its business to tackle more markets, such as the US. It has been developing a competitive advantage in the form of its branding and customer relationships.

So far, the company’s growth has been impressive. Last year, revenues grew 41% and post-tax profits grew 28%. Unlike many growth shares, this is neither a small nor a loss-making business. So, why has the boohoo share price plummeted?

It has suffered from negative publicity about labour conditions in factories that supply its products. But I think the much bigger concern is about the business model that led boohoo to focus on very cheap factory gate costs in the first place. Its strategy of competing at the bottom end of the market in terms of pricing has been a hit with customers. But it means boohoo has limited room to move when mounting costs threaten its profitability. From pricier fabrics to increases in shipping charges, boohoo has seen surging costs eat into the core of its price-led business model. Investors worry that that could be bad for profitability. The company’s latest profit warning in December stoked those fears.

Looking at the long term

I think fears about profitability are well-founded. The company has also been struggling to maintain sales in some regions. In the first nine months of this year, group total net sales grew 16%. But outside the key UK and US markets, the sales trends were negative. In the most recent quarter, the US also saw sales fall compared to the same period a year before.

But I think it is easy to overemphasise short-term trends. Revenues continue to post percentage growth in double digits. The company’s proven business model has ample room for expansion. Over time I think it will be able to pass cost increases onto customers in the form of higher selling prices. Getting rid of unprofitable sales might hurt revenues, but could help profit margins.

My next move on this UK growth share

Based on my optimism about the future outlook for the boohoo business, I think the shares have been beaten down too much. Given the profit warnings, this year looks set to be a rough one for the business and I do not think profit margins will recover in the short term. But boohoo remains a growing business with a track record of profitability.

I expect it will sort out its problems in the next couple of years. At that point, today’s boohoo share price could look like a bargain. That is why I have been buying boohoo shares for my portfolio. I plan to keep buying.

Christopher Ruane owns shares in boohoo group. The Motley Fool UK has recommended boohoo group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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Hot on the heels of HSBC on Tuesday, Barclays (LSE: BARC) reported record profits for 2021 on Wednesday. As a new CEO takes over, the economy continues its recovery from Covid, and interest rate rises loom, the Barclays share price could be about to surge. So, is it a company I would add to my portfolio today?

A not-so-traditional bank

As a major clearing bank with a significant, if diminishing, presence on the high street, Barclays provides all the bog-standard services that one would expect of a bank, including loans, mortgages and savings.

Beyond conventional banking, it has a diversified business model. It is the sixth largest investment bank and the largest outside the US. It also operates a very successful credit cards business and payments system. Together, these operations helped deliver record profits before tax of £8.4bn in 2021.

What attracts me to Barclays is the sheer breadth of its business model. It is able to benefit throughout different phases of the macro-economic environment. This explains why its share price recovered so much faster than its rivals since March 2020.

While interest rates remained at near zero throughout 2021, it was able to maintain margins through its investment banking proposition as trading activity soared. Today though, as interest rates begin to rise, net interest income (NII) will provide more traditional sources of revenue. It estimates that for every 0.25% rise, NII will improve by £500m. In addition, its latest spend data from Barclaycard shows that debit and credit spend in January 2022 was up 7.4% on January 2020 (that is, pre-pandemic).

Maintaining its competitive position

In the past 10 years, the banking landscape has been completely transformed. Digitisation has been at the forefront of this revolution. Today, customers want a seamless and efficient method of interaction in all aspects of their lives and banking is no different. So, as branch visits continue their downward trend, Barclays is signing up 11,000 new customers to its mobile app each week.

Delivering next-generation financial services, requires a huge investment to upgrade legacy systems and move operations to the cloud. Digital-native firms (the so-called Fintechs) are pushing hard and chipping away at margins in more lucrative parts of financial services, particularly payments. The bank has already invested over £500m to realise value from its payments’ platform.

Investing in modernising its legacy infrastrucutre doesn’t come cheap. Although its cost: income ratio is falling and heading for its target of 60%, a deterioration in economic conditions would inevitably lead to its reversal and have a knock-on effect on its modernisation strategy. Although I see Covid as a small risk, rising geopolitical tensions in Russia could hit consumer and business confidence. A weakening economic landscape would lead to revisons to calculated impairment costs thereby hitting profits.

One of the key pillars I see for future growth is providing funding to businesses developing green products and services. In the last three years, the amount of green loans and bonds has risen 291%. As it accelerates, thousands of start-ups will require capital to make this transition a reality. Such an opportunity represents the long-tail of trillions of dollars in investment capital. I believe this would have a positive effect on the long-term share price of Barclays.

Given all of the above, together with the sell-off across the broader equities market today, I intend to snap up some more shares.

Andrew Mackie owns shares in Barclays. The Motley Fool UK has recommended Barclays. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.