As the stock market recovery stalls, should I wait to buy?

Has the stock market recovery run out of steam? If so, what does that mean for our writer’s portfolio? Here he explains his approach.

Warren Buffett at a Berkshire Hathaway AGM

Image source: The Motley Fool

The stock market now sits where it did at the start of the year. The UK’s benchmark FTSE 100 index has moved up by less than a tenth of 1%. Over the past 12 months, it is 7% higher. So as the stock market recovery stalls, could now be a buying opportunity for me in advance of the next move up? Or ought I to wait and see whether I can soon buy shares more cheaply as prices fall?

Perils of market timings

The answer to the question is: I don’t know what will happen next to the stock market. Nobody does.

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If I manage to buy shares at a market bottom, my long-term investment returns could be much better than buying them at a market high. But markets are unpredictable and trying to time their movements can be a futile exercise. I may end up missing on a booming stock market because I was waiting a little longer, hoping to buy shares just a little bit cheaper.

So instead of focussing on market timing, I try to pay attention instead to the merits of individual businesses. If a business has strong performance and high potential, its shares could perhaps benefit from a stock market recovery. But they might also do well even in the face of a broader decline in the stock market.

Finding shares to buy

So, how do I find such shares?

I consider the company’s future prospects, its chances of doing well and the outlook for its profits.

For example, one of the shares I bought this year is Victrex. Shares in the polymer maker have tumbled 29% over the past year. But I think the underlying investment case remains strong. As a supplier to markets where quality is paramount, such as aviation and carmakers, the company has pricing power. On top of that it has proprietary technologies that help give it a defensible advantage over competitors.

Of course there are risks to Victrex. Soaring fuel costs could push up production costs and hurt profits. But while there may be short-term pain, in the long term I expect the business’s strengths to help support its share price.

Warren Buffett on waiting for a stock market recovery

In fact, this reminds me of a saying by investor Warren Buffett, that in the short-term the market is a voting machine, but in the long-term it is a weighing machine. In other words, a fall and stock market recovery can reflect investor sentiment that is affected by a host of factors. But in the long term, quality will out itself and hopefully be reflected in a company’s share price.

Buffett learnt that idea from Ben Graham and it has helped him make some highly rewarding moves in the stock markets over decades. Buffett does not try to time the market. What counts for Buffett is value creation over the course of years. That is why I am hunting for quality shares I could buy for my portfolio today, instead of waiting to see whether the stock market recovery stalls further.

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Christopher Ruane owns shares in Victrex. The Motley Fool UK has recommended Victrex. 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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