Why investing in shares as the market falls could make me richer!

Roland Head explains why investing in shares when prices are dipping could boost his investment profits in the future.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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The stock market is suffering from an attack of uncertainty. Inflation is surging and the UK (and other countries) could be heading into recession. So why do I believe now’s a good time to be investing in shares?

The simplest answer is to borrow from Warren Buffett. The billionaire investor once said that “you pay a very high price in the stock market for a cheery consensus.” Like Buffett, I prefer to buy shares when they’re cheap. Here’s how I do it.

Inflation Is Coming

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!

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Too soon or too late?

Some shares on my watchlist are already down 20% so far this year. The trouble is, I don’t know if they’ll keep falling, or if they might start to recover.

In reality, there’s no reliable way to time the market. What I do instead is to buy shares regularly, in stages. That way, if prices keep falling, my average cost price will be reduced by the cheaper shares I’ll buy later on.

This technique is known as pound-cost averaging (or dollar-cost averaging in the US). It helps me to make a profit on stocks even if they don’t perform as well as I’d hoped.

Profiting from falling shares

For example, let’s take a fictional company called Big Widgets. Unfortunately, its share price keeps falling from now until September, when it stages a recovery to end the year flat.

Let’s imagine that over the next three months, I invest £1,000 per month in Big Widgets:

DateShare priceAverage cost price
1 June100p100p
1 July85p92p
1 September75p85p
31 December100pProfit = 18%

By the end of the year, my Big Widgets shareholding is showing an 18% profit, even though the stock is unchanged from the date of my first purchase.

By buying gradually, I’ve caught the bottom of the market and made a profit even though the shares ended the year flat.

Of course, if prices rise, I won’t do so well. Pound-cost averaging into a rising market will mean I make less money than I would if I bought all my shares at the start.

For me, this risk is worthwhile because I know I can’t time the market. So I’m happy to settle for a more reliable approach that should increase my chance of consistently making some profit from my investments.

Investing in shares: what to buy?

Buffett once said that “price is what you pay, value is what you get.” I think his point is that it’s always important to consider valuation when investing.

My focus right now is on finding stocks that are conservatively valued and have the potential to generate reliable profits for many years to come.

Obviously, it’s impossible to be certain what the future holds. But I reckon there are some reliable clues to good companies. Some of the things I look for are strong brands, good market share and above-average profit margins.

In the FTSE 100 today, I’m looking at companies such as Unilever, DCC, Mondi and Imperial Brands. I’m also tempted by Airtel Africa and NatWest Group.

There’s no guarantee any of these stocks will be successful investments for me. But if I stick to my process and buy shares in good businesses when they’re cheap, I hope to do well enough to beat the market, over time.

Inflation Is Coming: 3 Shares To Try And Hedge Against Rising Prices

Make no mistake… inflation is coming.

Some people are running scared, but there’s one thing we believe we should avoid doing at all costs when inflation hits… and that’s doing nothing.

Money that just sits in the bank can often lose value each and every year. But to savvy savers and investors, where to consider putting their money is the million-dollar question.

That’s why we’ve put together a brand-new special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation…

…because no matter what the economy is doing, a savvy investor will want their money working for them, inflation or not!

Best of all, we’re giving this report away completely FREE today!

Simply click here, enter your email address, and we’ll send it to you right away.

Roland Head has positions in Airtel Africa Plc, DCC, Imperial Brands, and Unilever. The Motley Fool UK has recommended Airtel Africa Plc, Imperial Brands, and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

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