What might Warren Buffett buy in a Stocks and Shares ISA?

Fans of Warren Buffett taking his photo

Image source: The Motley Fool

When my new ISA allowance comes round each year, I try to learn from ace investor Warren Buffett.

I doubt he’d actually want a Stocks and Shares ISA, even if he could have one, mind. With the big sums he has to invest, the £20,000 limit wouldn’t be much use.

But I reckon it still helps a lot to think about what the stocks he might buy.

Fear and greed

Firstly, is it a good time to buy now? Well, Buffett has been buying more for his investment firm Berkshire Hathaway.

And in maybe his most famous quote, he urged us to be “greedy when others are fearful”.

Are people fearful now? Inflation is high, interest rates are high, and our pockets are emptier than they’ve been in years.

The FTSE 100 is unmoved in the past five years. And the banks are on price-to-earnings (P/E) ratios down in single digits. That all says ‘FEARFUL’ to me, in big scary letters.

Defensive moats

Our billionaire investing hero likes strong defensive moats. He once said: “If you gave me $100bn and said take away the soft drink leadership of Coca-Cola in the world, I’d give it back to you and say it can’t be done.”

He did buy a load of Coca-Cola shares though.

I see a few UK sectors where the leaders look strongly defensive. They include banks, insurers, housebuilders, and telecoms.

I think the big annual capital expenditure that telecoms firms need would probably rule them out.

Top financials

What about financial stocks? Buffett made his start in the insurance business. And, right now, I think he might like the look of Aviva, Legal & General, and a few other UK insurance stocks.

He also has a fair chunk of his money in US banks. Today, I think UK banks are better managed and less risky than some US counterparts.

In particlar, I rate Lloyds Banking Group highly on a price-to-earnings (P/E) ratio of 6.2. And I like Barclays even better, with its P/E under five.

Builders and oil

Buffett hasn’t been big on builders, so I doubt he’d buy any of the big UK ones. But then the US doesn’t have the same obsession with house prices that we see here in the UK.

I think the sector is great value now, but I’ll leave that for another day.

He’s big on oil companies though. This year, he upped his stake in Occidental Petroleum, for example.

I suspect he might like BP and Shell. BP, in particular, looks good to me on a P/E of only six. There’s a 4.4% dividend yield on the cards too, which adds to the attraction.

Quality stocks

The key thing for me when it comes to learning from Buffett can be summed up by another popular quote. He says: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

So rather than searching for the rock-bottom, cheapest shares, I try to put quality first.

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