With global stock markets falling at the moment, a lot of investors are wondering whether now is a good time to buy shares. My personal take on the situation is that, for long-term investors like myself, it really is.
I’ve certainly been putting my own money into the stock market recently. Here are three reasons why.
Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!
Why now is a good time to buy shares
One reason is that there’s a lot of negativity at the moment. Investors are worried about the Russia-Ukraine crisis, inflation, energy prices, interest rates, a recession, and more.
As a result, sentiment towards shares has deteriorated. This is illustrated by the fact that a recent US retail investor sentiment survey showed the highest level of pessimism since March 2009 (during the Global Financial Crisis).
Meanwhile, there’s fear in the air. Recently, the CBOE Volatility Index (also known as the ‘fear index’), has spiked up to levels not seen since early 2021.
But history shows that buying shares when there’s a lot of negativity and fear can pay off in the long run. As Warren Buffett says, the best way to make money from the stock market is to be “fearful when others are greedy, and greedy when others are fearful.”
The stock market hype is gone
Another reason I feel it’s a good time to buy shares is that all the hype has left the market. During the pandemic, there was a lot of hot air around stocks. Investors piled into the market and this pushed share prices up rapidly, at times. Opportunities would quickly get away.
The environment is now very different. With the hype gone, stocks are no longer rising rapidly. This is a good thing, in my view. I can now take my time to research the best opportunities, and build up positions in top stocks slowly.
Valuations look attractive
Finally, valuations have come right down after the recent market falls. For example, I can now buy shares in one of my favourite companies, Alphabet (Google), at a multiple of just 21 times this year’s expected earnings. That strikes me as a steal.
Meanwhile, I can pick up shares in one of my favourite UK companies, Rightmove, at just 23 times this year’s expected earnings. Again, that strikes me as a good deal. This is one of the most profitable companies in the FTSE 100.
Buying great companies at reasonable valuations tends to work well in the long run.
How I’d buy shares today
Of course, the stock market could go lower in the short term. It’s worth pointing out that Morgan Stanley’s chief US Market Strategist Mike Wilson believes the S&P 500 index could fall to 3,460, which is about 15% below its current level. If it did fall to that level, it would most likely drag the FTSE 100 down too.
So I’ll be drip-feeding money into shares slowly. That way, if the market does go lower, I’ll be able to capitalise.
I’m also going to be selective in terms of investments. Instead of buying index tracker funds I think it’s a better idea to be zooming in on high-quality companies.
I’m talking about companies that are recession-proof, protected from inflation, are highly profitable, and that have strong long-term growth prospects.
