Despite a decent week for the stock market, major UK stock indexes are still lower than they were at the start of the year.
So, given some stocks are now cheaper than before, how sensible is it to go hunting for bargains? Let’s take a look.
[top_pitch]
What has happened to the stock market recently?
The FTSE 100 and FTSE 250 have both risen by more than 3% since the week began. As a result, this indicates investors have been encouraged by recent news suggesting Ukraine and Russia may be nearing a peace deal.
Similarly, jobs figures announced by the ONS this week have shown that UK employment levels are rising – another factor that has been welcomed by investors.
Despite some positive news over the past few days, however, it’s fair to say that 2022 hasn’t been a good year for the stock market so far. Rising inflation remains an issue, as does the ongoing uncertainty surrounding the extent to which the world will be able to move on from Covid-19.
Since the turn of the year, the FTSE 100 is down 1.45%. Meanwhile, the FTSE 250 is 11.8% lower. To understand why the FTSE 250 has suffered so badly this year, see our article covering why the FTSE 250 has fallen more than the FTSE 100 in 2022.
How have individual stocks performed this year?
Both major share indexes in the UK have fallen this year. Because of this, there are a number of shares out there that are now significantly cheaper than they were at the beginning of 2022.
For example, among FTSE 100 members, Ocado Group plc is down by almost 25% since the start of January. Meanwhile, housebuilder Persimmon plc is almost 20% lower and drinks manufacturer Diageo plc has fallen by more than 9%.
There have also been big falls in the FTSE 250. Greetings card company Moonpig Group plc has fallen a massive 41.5% since the year began. On a similar note, bakery chain Greggs plc is down 23.8%, while Domino’s Pizza Group plc is 17% lower.
[middle_pitch]
Is now a good time to pick up some stock market bargains?
As a number of London Stock Exchange-listed shares have fallen significantly this year, you may be tempted to pick up some bargain-basement stocks.
Yet, if you have this mindset, it’s possible that you are disregarding one of the most important rules of investing: past performance should not be used as an indicator of future performance!
To put it another way, just because individual stocks have plummeted recently, there’s no guarantee they will recover. And even if they do, it could take a number of years. Likewise, any stocks that have fallen since the start of the year could yet have further to fall.
So, while ‘buying the dip’ may seem tempting, there’s no guarantee this investing strategy will come up trumps.
Also, if you do buy stocks after falls, particularly if you have a goal of turning a quick profit, be aware that you are essentially playing a zero-sum game. You could be successful of course, though it’s also possible you’ll suffer losses.
For more on buying stocks after big falls, see our article that explores whether ‘buying the dip’ is a good idea.
How can you invest in individual stocks?
If you want to buy individual stocks, then it’s worth keeping a long-term horizon in mind. That way, you’ll avoid the zero-sum game played by day traders. Instead, you’ll benefit from any long-term growth of your chosen individual stocks.
To buy shares in an individual company, you’ll need a share dealing account. If you can, aim to go with a provider with low fees to minimise costs. Hargreaves Lansdown is often a popular choice for this very reason, though it’s worth checking other options as well.
Are you new to investing? Remember that when you invest, your capital is at risk. To build your understanding of the stock market, it’s a good idea to read our investing basics guide.
