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Investors often look for deep, long-lasting value by buying cheap stocks during stock market downturns. But if it were me today, I’m sure I would have had to wait a lot longer.
Reason – The stock market has already fallen!
Let me explain clearly why this is important right now.
after the c-word
The pandemic caused massive panic in world stock markets.
On 17 January 2020 FTSE 100 Sitting at 7,674. Eight weeks later, the index of the UK’s top 100 companies had fallen 30%.
This was the worst accident since 1987.
I wrote at the time: “I think I’ve checked my Stocks and Shares ISA app 30 times [a day], While firing was going on at the circuit breaker S&P 500 The same thing was happening in my mind. I could not believe it. All those profits, wasted. Disappeared in a puff of smoke.”
But here I am, on the other side and my portfolio of stocks and shares is doing quite well.
What happened was that I was able to buy good FTSE 100 Companies cheaply. I checked my investing checklist. I set aside some cash to take advantage. And I stuck to the plan.
beat the bear
Markets move in cycles. From the optimism of bull markets to the pessimism of bear markets and back again. This is the nature of the beast. Same is the case when we consider economic development. For example, see the International Monetary Fund’s bi-annual global outlook.
In October 2023 it said that global growth would decline from 3.5% in 2022 to 2.9% in 2024. So is this a signal to exit my investment? Running out of time and all that’s left is cash? I think this would be a big mistake.
If I did that, I would miss out on growing positions in quality dividend stocks.
I’ve found that owning good companies in which I maintain my position for the long term through reinvested dividends is the easiest way to build my wealth. It’s easy for me to get distracted and ignore this fact. Warren Buffett took note of this a few years ago.
“What you’re looking for is a way to get one good idea out of the year,” He said. “It is very difficult to do this. “Especially in an environment where people are shouting about prices every five minutes and putting reports in front of your nose.”
How to set a profit target
2022 was also an exceptionally difficult year for investor portfolios. Between January and June, S&P 500 Fell 20.6%. This is the worst result for the US index since 1970!
Michael Green, highly regarded portfolio manager at Simplify Asset Management, said as much this week.
Speaking on the Eurodollar University Podcast, he presented the picture: “It’s now been over 500 days since November 2023 Russell 2000 [the US index of small companies] Last time a 52-week high was made.”
According to Green’s metrics, one of the worst bear markets in history has already happened!
My conclusion? Waiting for a stock market crash to buy cheap stocks just means sitting in cash and waiting for a big recession that may never come. Instead, I will try to drip my purchases in both bull and bear markets to build my long-term wealth.
Waiting for the stock market to drop to buy cheap stocks? It’s already happened! appeared first on The Motley Fool UK.
Tom Rodgers has no position in any stocks mentioned. The views expressed on the companies mentioned in this article are those of the author 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 wide variety of insights can make us better investors.
Motley Fool UK 2023