In September, Warren Buffett’s conglomerate Berkshire Hathaway had a record cash pile of around $149bn. And given his investment history, I reckon it’s safe to assume he thinks stocks and businesses have been expensive. He hasn’t made a big acquisition within Berkshire Hathaway for years and he’s known for avoiding stocks when he thinks they’re overpriced.

Buffett’s focus on quality

I’ve been reading a book called The Warren Buffett Stock Portfolio by Mary Buffett and David Clark. It explains how the great investor got out of the stock market altogether in 1969 when he thought valuations were too high. Prior to that, he’d made a fortune for himself and his investment partners by following Benjamin Graham’s deep-value investing techniques. But cheap shares became hard to find, so he stopped looking.

Instead, he avoided stocks completely until the market crash of 1973/74. Then, when valuations plummeted, he began buying again. But his strategy was different. Instead of looking for a quick return from the cheap shares of low- or mediocre-quality businesses, he went shopping for quality.

From that point, he tended to buy quality businesses — or their shares — and hold them for the long term. So, we don’t see Buffett cashing out of the market altogether anymore. But we do see him refrain from buying stocks or making acquisitions when he thinks valuations are too high. And that’s when the cash piles up in Berkshire Hathaway from dividends and cash flowing from the businesses the conglomerate owns outright.

Buying when the price is right

But since the 1970s, Buffett has shown us time and again that he’s willing to buy stocks and businesses at opportune moments when valuations are lower. He’s often out deploying Berkshire Hathaway’s cash when stock markets are crashing and everyone else is worried about something. However, he doesn’t buy any old rubbish. He shops carefully for businesses with an enduring competitive advantage over their competitors.

He calls such beasts “wonderful” businesses. And he’s of the opinion the stock market is made up of many low-quality or mediocre businesses and a small number of excellent businesses.

However, although the concept is simple, executing the Warren Buffett method isn’t easy. One of the problems for me is good-quality businesses tend to almost always attract a higher valuation than mediocre businesses. That’s why Buffett often pays a “fair” price for excellent businesses rather than a cheap price. And that’s even when stock markets are crashing around his ears and many people are selling or avoiding stocks.

But the longer-term returns from high-quality businesses can be worth having. And one way to try to find them is by looking for businesses with chunky returns compared to equity or invested capital and robust operating margins. For example, I think premium branded alcoholic drinks giant Diageo is an excellent business. And so is information and analytics specialist Relx. Both stocks have gone up by hundreds of per cent over the past 10 years.

Of course, positive investment outcomes aren’t certain, even if I shop for quality stocks, because all shares carry risks. But if there’s another market crash taking valuations lower, I’ll look for quality stocks like these and others to buy and hold for the long term — just like Warren Buffett has done in the past.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo and RELX. 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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I was lucky enough to have a number of positive influences before I started investing. One of the first was discovering Lord Lee’s story of becoming an ISA millionaire. It inspired me to set this as my own investing goal. But it wasn’t the only influence I had, because I also discovered Warren Buffett early on in my journey too.

So now, I aim to become an ISA millionaire by using Warren Buffett’s investing philosophy. Here’s what I’m doing.

Warren Buffett’s baseball analogy

The first Warren Buffett idea I use is from baseball. I don’t watch the sport myself, but all I need to know is ‘three strikes and you’re out’. When a batsman misses three pitches, they’re out. But it doesn’t quite work like this when investing. Warren Buffett explains it best: “The trick in investing is just to sit there and watch pitch after pitch go by and wait for the one right in your sweet spot.”

What he means by this is that an investor doesn’t have to be an expert on every company or sector. I don’t only get three pitches (or companies) to choose from, but every publicly listed company.

Warren Buffett also described this as investing in your circle of competence in Berkshire Hathaway’s annual shareholder letter in 1996. It doesn’t matter how big the circle is – or area of expertise – but knowing my boundaries is key.

Today, I buy companies that I understand. I also don’t stress when other investments are performing well, particularly if they aren’t in my circle of competence. I have many options to choose from, and can wait for the right pitch.

Buying quality companies

The next strategy I use is again best described in the words of Warren Buffett himself: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

There are many ways to define a wonderful company. Usually though, it depends on the returns the business can generate on the capital it uses. One way to calculate this is return on capital. This is the profit a business makes divided by the debt and equity capital it used to generate the profit.

If a business achieves a 20% return on capital, and is able to reinvest its profits at that same return, then over time, the company will generate wonderful returns for investors. Warren Buffett means it’s far better to pay a fair price for a business like this, rather than pay a wonderful price for a business that generates far lower returns on its capital.

So now, I bias my own portfolio towards companies with high returns on capital, but I make sure I pay a fair price.

Patience is key

There’s no quick route to becoming an ISA millionaire, so patience is key. This is what Buffett said about the companies he buys: “Our favourite holding period is forever.” I think this is the most important piece of advice I’ve taken from him.

I look to buy wonderful companies, and let them compound over long periods. Sometimes share prices are volatile, but if I understand the business and nothing has changed, I can carry on holding the shares.

Dan Appleby 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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The problem of soaring inflation looks set to reign well into 2022. In recent hours. Jerome Powell, head of The Federal Reserve, said the bank intends to stop using the term “transitory” when referring to the trend of rampant price rises. It suggests that Powell now expects extreme inflationary pressures to last longer than previously thought.

This perhaps isn’t much of a surprise. Inflation readings in major economies across North America, Asia and Europe are now sitting at multi-year highs. Some of the supply chain issues that have caused prices to rocket appear no closer to being resolved either.

It’s no wonder that gold prices are steadily strengthening following extreme weakness earlier in 2021 — surging inflation boosts demand for non-paper currencies such as precious metals. Yellow metal prices are building a base around $1,800 per ounce and could be poised to strike higher. In a recent interview with Arabian News, Barclays‘ chief market strategist Gerald Moser suggested gold values might rise as much as 20% over the next year.

Buying the gold producers

The prospect of strong and sustained price increases isn’t the only reason I’d seek to get exposure to gold today. The enduring Covid-19 emergency, swift economic cooling in China, and the prospect of fresh trade wars between major nations could also spook investors into buying safe-haven precious metals.

I wouldn’t load up on gold coins or bars however. Nor would I invest in something like the Goldman Sachs Physical Gold ETF. Owning physical gold, or a financial instrument like an exchange traded fund (ETF) that’s backed by the metal, is a good way to make money when the commodity price goes up. But it doesn’t let investors generate income from the assets they hold.

This is why I’d rather have exposure to the companies that pull the yellow metal itself out of the ground. One way I can do this is by investing in an ETF which holds shares in gold companies, like Sprott Junior Gold Miners ETF. Another way is to go shopping on the London Stock Exchange for specific shares to buy.

A top penny stock on my watchlist

This is the route I’m looking to pursue. It would allow me to receive dividends in addition to riding any gold price gains. Buying individual mining stocks or ETFs which own gold companies expose investors to the business of digging for the metals themselves. This can prove problematic for profits as production issues that hit revenues and drive up costs can be commonplace.

Still, I think the possibility of receiving juicy dividends makes up for this extra risk. And some UK gold-producing shares offer some jaw-dropping yields right now. Centamin is a mining company I’m considering buying for this very reason. Its yields for 2021 and 2022 sit at a gigantic 7.2% and 5.3% respectively.

I like this particular penny stock too because of work it’s undertaking to turbocharge production levels and bring down costs. Centamin is looking to produce up to 500,000 ounces of gold a year by the middle of the decade. I think the business could prove a lucrative UK share to buy in the near term and beyond.

Royston Wild has no position in any of the shares mentioned. 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.

It’s been a rough couple of days for Salesforce (NYSE: CRM) stock. As I write, the share price is down almost 10% since the market closed on Monday. But it’s also been a busy time for the company. It released its third-quarter earnings on Tuesday, and also announced a new co-CEO.

Let’s take a look to see if the recent share price weakness has presented me with a buying opportunity.

Salesforce’s results

It’s best to start with the third-quarter results. Adjusted earnings per share came in at $1.27, which was an impressive feat against consensus estimates of $0.92. Revenue for the quarter came in at $6.86bn, which is an increase of 27% over the same period one year ago. This was about in line with analysts’ expectations for revenue.

Salesforce also raised its revenue guidance for its full fiscal year 2022, which is now for growth to be around 24%. It then reiterated revenue guidance of 20% for 2023.

These figures are good, in my view. The growth rate was strong, and the company upgraded its outlook for the coming year. So it’s not exactly straightforward as to why the stock has fallen.

However, US market valuations are currently rather high based on historical standards. Companies have to show exceptional growth to warrant these high valuations. If they don’t, and even worse, they miss analysts’ expectations, then share prices can fall significantly.

Looking at Salesforce’s valuation in particular, the stock does look pricey. On a price-to-earnings (P/E) basis, the shares are valued on a multiple of 65. After the company reiterated its revenue growth for 2023 at 20%, this translates into an earnings growth forecast of 11%. I’d want earnings to be growing more than this to warrant such a high P/E ratio.

A new co-CEO

The earnings release wasn’t the only news out of Salesforce this week. That’s because the company promoted Bret Taylor into a co-CEO role, to work alongside current CEO Marc Benioff. He was previously CTO at Facebook (now Meta), and at Salesforce he’s been COO since 2019.

The firm has grown substantially through acquisitions in recent years. The company acquired Tableau in 2019, which was followed by purchasing Slack in 2020. The appointment of Taylor as co-CEO seems prudent given how the business has evolved into a much bigger company of late.

I don’t attribute the recent Salesforce stock price weakness to the appointment of Taylor though. He’s highly experienced in the technology sector, and was promoted from within so will know the company very well. Taylor was also appointed the independent chair of the board of Twitter this week, so he will no doubt be busy in his new roles.

So is the stock a buy?

I view Salesforce as a quality business. It’s highly cash generative, and the forecast for operating margin this year is a high 18.6%. There’s integration risk to think about though, given how acquisitive the company has been. There are no guarantees that these businesses will be successful within Salesforce.

But it’s mainly the valuation that holds me back from buying the stock today. I’m keeping it on my watchlist to buy on any further weakness in the share price.

Dan Appleby owns shares of Meta. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Twitter. 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.

Shares in cinema operator Cineworld Group (LSE: CINE) fell by 20% in November, even as moviegoers flocked to see the latest James Bond film. With more potential blockbusters scheduled for release later this year, I reckon Cineworld could be on track to deliver a strong recovery over the coming months.

In this article I want to explain what I think happened in November — and whether I’d buy Cineworld stock for my portfolio.

007 boosts revenue

Us Brits love a good Bond film. Cineworld’s UK revenue in October was 27% above 2019 levels, as moviegoers rushed to see Daniel Craig’s final outing as 007.

The group’s cinemas in the US and elsewhere also delivered an improved performance. Cineworld’s total revenue in October reached 90% of 2019 levels. As a result, the business generated positive cash flow in October, for the first time since before the pandemic.

Takings were boosted by punters tucking into high margin treats, such as soft drinks and popcorn. We don’t know if visitor numbers have matched 2019 levels — Cineworld didn’t release this information. Even so, I reckon October’s result is a big milestone on the road to recovery.

Watch out for the evil villain

Blockbuster movies like No Time to Die are the heroes in this story, driving movie fans back to the cinema. But I reckon there’s a villain in the piece, too — debt.

Cineworld’s net debt was a massive $8.4bn at the end of June. Even if we exclude lease liabilities on the group’s cinemas, net debt was still $4.8bn. That’s equivalent to 3.6 times 2022 forecast EBITDA, or underlying cash profits.

This level of leverage is well above my preferred limit of 2-2.5 times EBITDA. I think there’s still a risk that Cineworld will struggle to repay this debt without some kind of restructuring. This could include raising new cash from shareholders.

Even if Cineworld manages to dodge this bullet, there’s another potential baddie lurking in the shadows. Canadian cinema chain Cineplex is currently seeking $1.1bn in damages from Cineworld for cancelling an acquisition deal agreed just before the pandemic.

I have no idea who will win this legal battle. But I think that uncertainty around the group’s debt levels and legal problems are two of the main reasons why the shares fell in November.

Cineworld shares: would I buy?

I don’t want to be too downbeat here. Cineworld is the world’s second-largest cinema business. It has good economies of scale and a strong portfolio of sites in the UK and US. I think the company is a good operator, too. CEO Mookie Greidinger is a sector specialist who is known to be fanatical about the cinema experience.

Broker forecasts suggest Cineworld revenues will rise to 90% of 2019 levels next year, allowing the group to start repaying some of its debt. Earnings are expected to return to 2019 levels in 2023. If this happens, then the I think the shares could be cheap at current levels.

However, 2023 is still a long way away. In the current environment, I’m not comfortable investing in a consumer business with such high levels of debt. For me, the risks are too high.

I may return to the cinema, but I won’t be buying Cineworld shares for the foreseeable future.

Roland Head 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.

Warren Buffett is one of the world’s richest people, worth over $100bn today. He’s also been investing for over 80 years, ever since he turned 11 years old. What the ‘Oracle of Omaha’ doesn’t know about investing isn’t worth me knowing. Here are 10 investing tricks I learnt from Warren Buffett’s wise words that have made me a far better investor today.

1. “Do not save what is left after spending, but spend what is left after saving”.

This Warren Buffett quote helped me invest directly from my monthly pay, preventing me from splurging my money and always ending up broke. After all, if I can’t save, then I can’t invest, right?

2. “The worst investment you can have is cash. Cash is going to become worth less over time”.

Here, I learnt from Warren Buffett that I would never get rich by squirrelling every bit of cash away in deposit accounts. I have to risk some of my money in order to earn higher returns. And that means investing in assets such as shares, bonds, and property.

3. “Just buy something for less than it’s worth”.

This Buffett saying helped mould me as a value investor. These wise words taught me it’s okay to pay premium prices to invest in excellent companies. After all, quality costs more, right? Hence, after 35 years, I’m still searching out lowly rated stocks with high earnings/dividend yields.

4. “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes”.

Here, I learnt from Buffett that investing is about buying shares for the long term, not gambling or trading on short-term price movements.

5. “It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price”.

This is one of the most important things that I learnt from Warren Buffett. These days, I aim to buy into world-leading businesses with great growth prospects. Gone are the days when I would buy beaten-down stocks, only to watch them take more beatings!

6. “Never invest in a business you cannot understand”.

In my early years as an investor, I used to buy stakes in all kind of weird and wonderful businesses. Most of these ‘scattergun’ investments lost money one way or another. Today, I would far rather invest in established companies selling great products/services and led by good managers.

7. “Never bet against America”.

As a proud American, Warren Buffett has witnessed nine decades of US global dominance. Today, the US is still the world’s largest economy, with the richest population and the biggest stock markets. That’s why, like Buffett himself, my family’s wealth is largely invested in US stocks.

8. “The best chance to deploy capital is when things are going down”.

This Buffett maxim helped me deal with my fear of stock market crashes. In the depths of the 2007-09 stock market meltdown, Buffett invested 100% of his personal wealth into US equities. Since March 2009’s low, the S&P 500 index has gone from 666 to 4,650 today. That’s almost exactly a seven-fold return.

As the master also said, “Be fearful when others are greedy, and be greedy when others are fearful”. Nowadays, I happily take profits by selling when stock prices have soared. Likewise, I always keep a chunk of cash in reserve, ready to deploy when the next stock market crash arrives!

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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Last week, Joe Biden announced that he would nominate current US Federal Reserve (Fed) Chair Jay Powell for a second term. His most pressing concern will be to stop the onset of hyperinflation. Inflation, which is the general rise in price levels due to the increase of monetary supply, has taken off in recent months. This can be bad news for us stock investors. Warren Buffett has said there is no greater destroyer of wealth than inflation. Right now the Fed is indicating that in order to curb inflation, which is running in excess of 6%, it will taper its purchases of US treasury securities. This and the increase of interest rates in 2022 are the options available to Powell and his team at the Fed. It remains to be seen how soon and how effective these interventions will be in preventing all-out carnage on investor returns.

There are, however, certain types of businesses that can survive and even do well in this environment. I recently wrote an about a UK stock that I think will do well in this inflationary environment. I believe the following two banking stocks are in that same mould. Why banks? Well, they benefit from higher interest rates because it affords them higher yields on the cash they hold on behalf of customers.

A Buffett-backed banking stock

First up is Bank of America (NYSE: BAC). When Buffett sunk $5bn into this banking stock in 2011, it was a vote of confidence in the leadership of CEO Brian Moynihan and that bet has not let Buffett down. Bank of America has arguably the best consumer banking brand in the US. Its industry-leading wealth management platforms function well with Merrill Lynch and it has made the necessary technology investments to be award-winning in that space. It is one of the ‘Big Three’ US banks, which attract 50% of all new checking accounts. With a current price-to-earnings ratio of 13.86 and a price-to-book ratio of 1.52, I think this banking stock is trading at a discount.

A bank for the ages 

Fun fact: US Bancorp (NYSE: USB) operates under the second-longest continuous banking charter in US history and is currently the fifth-largest banking institution in the US. Fun aside, this stock is also a staple in the value matrix of many hedge funds. Its 3.12% dividend yield is attractive to me. With $568bn in assets, this bank is not only large but very efficient. It has trended upward with an average increase of 9% over the past 10 years. As a banking stock, it excels not only due to its size and efficiency but is expanding rapidly. It recently acquired MUFG Union Bank for $8bn and just announced plans to acquire fintech firm Travel Bank.

Banks are of course subject to various systemic risks – the 2008 crisis proved this. And all banks are dependent in part on central banks for their cues. Right now the main threat is that the Fed fails to control inflation. Inflation allows borrowers to pay back lenders with money that is worth less than what they originally borrowed. Inflation in excess of 6%, combined with the Biden administration’s plan to increase the corporate tax rate by at least 5%, could mean a pretty steep hurdle rate for banking investors to make good returns in the future.

Stephen Bhasera has no position in any of the shares mentioned. Bank of America is an advertising partner of The Ascent, a Motley Fool company. 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.