Some investors may be dissuaded from finding UK shares to buy as a result of the recent market crash. However, a risky economic outlook could allow you to buy cheap shares in your Stocks and Shares ISA that leads to impressive returns in the long run.
Warren Buffett has used a similar strategy throughout his investing career. Through identifying the best shares to buy while other investors are cautious about their prospects, you could build a surprisingly large ISA in the long run.
Buying cheap UK shares after a market crash
There may yet be another market crash that impacts negatively on the prices of UK shares in the short run. However, this risk certainly presents a buying opportunity for Stocks and Shares ISA investors. They can purchase high-quality businesses while they trade at lower prices. This creates greater scope for capital growth, while reducing overall risks due to the presence of a wide margin of safety.
Buffett has famously bought stocks when other investors are more interested in selling them. He may not have generated high returns in the short run. However, his investment performance over the long run suggests his strategy is very effective. It’s also very simple, and can be replicated by almost any investor that can ignore market sentiment to purchase strong businesses at attractive prices.
Diversifying your Stocks and Shares ISA
Of course, not all UK shares will recover from their current price levels to post new record highs. Some businesses may be unable to adapt to changing operating conditions. Others may lack the financial firepower to invest in a post-coronavirus world.
Therefore, it’s imperative to invest in a broad range of companies within your Stocks and Shares ISA. For example, owning companies in different sectors and different regions could lead to less exposure to country-specific or industry-specific challenges that may arise. This reduces your overall risk, and means you’re less reliant on a small number of stocks to produce your ISA portfolio’s returns.
Identifying the best shares to buy today
Buying UK shares that have a competitive advantage over their peers could be a worthwhile move. They may offer less risk and greater scope to deliver fast-rising profits. This may be as a result of a unique product or strong brand, for example.
Buffett has continually invested in sector-leading businesses that benefit from competitive advantages throughout his career. Not only could such companies be more likely to survive short-term economic challenges that are currently present, they may also be better able to extend their market share at the expense of weaker competitors. Therefore, purchasing them at low prices now could lead to strong growth for your Stocks and Shares ISA over the long run.
