It seems to me that many investors are wary about the possibility of another stock market crash. But stock reversals, corrections and sometimes crashes are part of the way the markets conduct normal business.
Why setbacks can be opportunities
Instead of being nervous about market setbacks, I reckon the most successful investors view them as opportunities. After all, when stock prices move lower, we can often find better value. So, instead of selling everything and running for the hills, I’m aiming to go shopping for shares when the stock market reverses.
My plan is to buy stocks at opportune times and then hold them for a long time as the underlying operational progress unfolds. However, I acknowledge that sometimes such a course of action can be emotionally difficult, at least for me. Last week, for example, the headlines were full of speculation about the next potential collapse in the markets. And at times like that, I sometimes have to dig deep just to hold my nerve with stocks.
But I’m getting plenty of practice because setbacks are common. When I look at the progress of indexes like the FTSE 100 and S&P 500 over recent years, they often look a bit like a series of shark-fin shapes. Indeed, the markets seem to stair-step up slowly then plunge down quickly like an elevator. And the pattern repeats over and over again.
Some investors like to define a ‘healthy’ correction in the markets as a move of about 10%. And the opinion of many seasoned market professionals is that such reversals are really nothing to worry about — but as I mentioned earlier, they can be an opportunity to buy stocks. Then, of course, we sometimes get an unexpected event that causes a ‘proper’ crash. Examples include the pandemic. And before that, the financial crisis of the noughties.
For me, these are shares to buy
But Fidelity’s outperforming fund manager and investor Peter Lynch once offered investors some sage advice. He said: “The real key to making money in stocks is not to get scared out of them.” And to me, that means holding the shares of quality businesses through thick and thin. But that only applies as long as the growth potential remains intact and nothing happens to change the underlying ‘story’. If the reasons I bought a stock remain in place, there’s no reason to sell it — even if a full-blown market crash comes along.
But when the next setback, reversal or correction arrives, I’ll be poised to pounce and buy shares with my watchlist in hand. And there are three stocks sitting near the top of that list. The first is engineered door and window component supplier Tyman. Secondly, I’m keen on geotechnical groundworks company Keller. And the third stock I’m watching is industrial services firm Hargreaves Services.
But I could still lose money. And that’s even though I like the forward-looking prospects of these businesses and aim to buy the stocks when they represent good value. Indeed, all stocks carry risks. But I’m prepared to risk my capital in the pursuit of longer-term gains. However, I wouldn’t buy any stocks without first undertaking thorough research.
