Over the course of many decades of investing in the stock market, Warren Buffett has been through good times and bad. One of the many interesting things about the billionaire’s career is the way in which he has actually managed to turn turbulent markets to his advantage.

That is no accident. It reflects some simple but powerful factors in Buffett’s approach. Fortunately, these can also work for private investors on a small budget.

Having a strategic approach to investing

Buffett does not enter a market crash by throwing all his investing rules out the window and treating the situation differently to boom times.

Rather, he has developed a strategic approach to hunting for value in the market as a long-term investor and applies it through good times and bad.

That means he is always prepared for turbulence, even if it arrives unexpectedly.

Being ready to act at short notice

Buffett has also long been able to act quickly. Partly, that comes from having a strategic approach and often thinking through investing ideas well in advance of being ready to buy. But it also involves being able to think rapidly, rather than getting bogged down in so-called analysis paralysis.

Buffett has set parameters about what he wants when investing and builds in a margin of safety. This means he is able to move at speed.

Of course, it also helps that he often has lots of liquid cash on hand to invest. Clearly that may not be possible for all of us.

But I do consider this question of whether to hang onto cash instead of buying a share. I ask myself whether I am buying merely a good idea now because cash is burning a hole in my ISA, rather than sitting on it and waiting for what I think is a brilliant idea to come along later.

Differentiating short-term challenges from bigger problems

Buffett sold his Tesco shares in 2014 following an accounting fraud at the company. He sold at a big loss. Contrast that to his long-term holding in American Express (NYSE: AXP). He actually only bought that stake following revelations of an accounting fraud.

What was the difference? At Amex, the fraud in question was deeply damaging financially in the short-term. But once discovered, it could be resolved and hopefully prove to be a one-off.

Crucially, one of the company’s subsidiaries was a victim – but not the perpetrator. That contrasts to Tesco, where the fraud directly affected the business.

Buffett was in no position to judge whether there was more bad news to come back then at Tesco. He therefore decided to cut his losses.

His fear was that what he had thought was Tesco’s investment case might be built on sand. Ultimately, Tesco recovered – but that was not inevitable based on what Buffett knew back in 2014.

By contrast, the long-term investment case for American Express when Buffett bought was largely unchanged from before: a prestigious brand, proven business model, large customer base and excellent growth prospects.

Buffett judged — correctly — that the scandal was a short-term hit to earnings, so the damage it had done to American Express’s share price was overdone.

History proved him right – and very profitably so…

Should you invest £5,000 in American Express right now?

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And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if American Express made the list?

Christopher Ruane does not hold any positions in the companies mentioned.