As an investor with money in stocks, it’s natural to want the stock market to go up. If share prices increase, then I can one day sell the shares I own for more than I paid for them.
As obvious at that sounds, I’m hoping for the opposite. I want the stock market to go DOWN in 2022. That sounds like exactly the wrong thing to think, but here are three reasons why I think the stock market going down in 2022 would be good for me as an investor.
New investment opportunities
Firstly, and most obviously, lower share prices in 2022 mean more attractive investment opportunities.
I think that Rightmove is a tremendous business and one that I’d like to own shares in. I’ve never invested in the company before because I’ve always thought its share price was a bit too high. But a downward shift in share prices across the board might give me the chance I’ve been waiting for.
Better investment opportunities
Secondly, a falling stock market might give me better opportunities to add to my existing investments.
I own Legal & General stock in my portfolio, which I bought at an average price of around 197p per share. I’d like to own more shares, since I think the company’s prospects are good and I don’t want to sell the shares I have.
The only question, then, is how much someone is going to sell them to me for. As an investor who wants to buy Legal & General shares – as opposed to selling them – it’s better for me if prices are lower.
If I invest £1,000 in Legal & General shares with the price at 200p, I can take ownership of 500 shares. Investing that same £1,000 with prices at 250p, I’ll only get 400 shares. It’s better for me to get more for my money, so lower share prices help me as a prospective buyer of Legal & General stock.
Better buyback opportunities
The third reason that lower share prices are good for me as an investor is that companies that I own can repurchase their shares at attractive prices.
A good example of this is Meta Platforms. Over the last decade, the company has spent around $91bn on share buybacks. As the share price decreases, the proportion of the company that each remaining shareholder owns goes up.
If Meta Platforms is going to continue to repurchase shares, it’s better for me as a shareholder if it does so when prices are low. If the company spends money buying back shares when prices are low, my ownership of the business goes up by more than it does when the company repurchases stock at higher prices.
With Meta, if the company spends $2bn buying back shares with the stock at $350, the company can repurchase around 5.6m shares, increasing my ownership by around 0.2%. But if the share price is at $200 when Meta uses that $2bn for buybacks, the company can repurchase 5m shares and increase my ownership by 0.36%.
Conclusion
It sounds unnatural, unexpected, and even unintuitive, but I’m hoping for lower stock prices this year. As long as the underlying businesses are unaffected, lower stock prices (at least in the short term) just mean better buying opportunities for me as an investor!
