4 Simple Rules for Picking up Bargains during a Market Crash

“I don’t try to jump over 7-foot hurdles: I look for 1-foot hurdles that I can step over.”

– Warren Buffett

The quote above from investing maestro Warren Buffett suggests that investing should be – to borrow a phrase from Albert Einstein – kept as simple as possible, but not simpler.

This approach may be useful in today’s context when we look at where the Straits Times Index (SGX: ^STI) sits. From its high in April this year up till yesterday, the market barometer has fallen nearly 20%, suggesting that there could be bargains in the stock market now.

With Buffett’s mantra in mind, we may want to start with simple rules when looking for investing opportunities. Here’re four to consider.

Rule 1: Net cash on the balance sheet – click here

Rule 2: Free cash flow – click here

Rule 3: A business that you can understand – click here

Rule 4: Avoid technology companies

An off-shoot from Rule 3 is to avoid technology-based companies. The Foolish investor might want to take a Buffett quote to heart regarding this point:

“I look for businesses in which I think I can predict what they’re going to look like in ten to fifteen years time. Take Wrigley’s chewing gum. I don’t think the internet is going to change how people chew gum.”

In other words, if you are not able to understand the technological advantages of say, a company like diamond manufacturing systems maker Sarine Technologies Ltd (SGX: U77), then it may be hard for you to guess where the company will be in ten years’ time.

Now, this is not to say that all technology companies will make for bad investments. But, if you are looking to keep it simple, then following Buffett’s advice has its value.

Foolish summary

The four simple rules above represent starting points to sieve out good candidates for further research. This may help us pare down our investing universe to a manageable number as we look for bargains during a market crash.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.