This stock market sell-off could be my buying opportunity of the decade

The market sell-off has been brutal, but this Fool thinks it offers him a compelling opportunity to make big money.

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.

Man smiling and working on laptop

Image source: Getty images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

As hard as it’s been to see my portfolio dwindle in value, I believe the market sell-off we’re seeing in 2022 is actually very healthy. In fact, I think it could potentially be the best buying opportunity of the decade.

It had to happen

Hindsight is a wonderful thing. Nevertheless, it is possible to look back and identify a few warning signs as to why the global markets are behaving as they are.

For one, there were a lot of unprofitable growth companies trading on obscenely high valuations as 2021 came to an end. That’s fine when everyone’s bullish, less so when interest rates (inevitably) move higher.

Second, the recovery from the pandemic felt overdone in even high-quality, established companies. When a company like Amazon doubles in value in just over 12 months, you get the sense that everything is priced to perfection. As expectations rise, so does the risk of disappointment.

Reframing the stock market sell-off

As a fully signed-up Fool, I’m an advocate of adopting a ‘glass-half-full’ attitude. What makes me particularly positive right now is that sentiment hasn’t been this low since the beginning of the Covid-19 pandemic, at least according to measures such as the Fear vs Greed Index on CNN Business.

That may sound counter-intuitive but history has consistently shown this to be the great buy signal. Just think back the Financial Crisis of 2007-2009 and the decade-or-so bull market that followed. Such is the topsy-turvy world of investing.

In my view, all of the issues market participants are currently obsessing over are also temporary in nature. Supply chains will normalise, inflation will ease, the Ukraine-Russia conflict will mercifully end. In the meantime, Mr Market is reminding investors of the importance of valuation and not succumbing to hype. He’s also offering me great stocks at great prices.

Here’s what I’m doing

My strategy for dealing with this stock market sell-off is three-fold. First, I’m continuing to drip-feed money into existing positions. For example, my buys this month have included topping up my holdings in Smithson Investment Trust and Montanaro European Smaller Companies Trust.

Both of these have badly underperformed relative to the FTSE 100 this year (down 35% and 39% respectively). However, I’m confident both quality-focused funds will outperform in the long term, even after fees.

Second, I’m continuing to build a watchlist of stocks I’d consider snapping up if the market sell-off continues. For added protection, I’m making sure that these come from a wide variety of sectors rather than just one or two.

Third, I’m taking time out from the market. After all, there comes a point where further analysis delivers diminishing returns. So long as the investments I’ve made are in accord with my financial goals, risk tolerance and time horizon, it’s probably best to switch off from all the daily noise.

Have we seen the bottom?

With talk of a recession getting louder, it’s easy to think things will get worse before they get better.

The positive news is that evidence shows this should matter less and less as the weeks, months and years pass. So long as I’m able to buy when sentiment is low rather than high (i.e. now!), I can be pretty confident of being rewarded over the next decade and beyond.

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 assessed. Consider taking independent financial advice.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Paul Summers owns shares in Smithson Investment Trust and Montanaro European Smaller Companies Trust. The Motley Fool UK has recommended Amazon. 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.

More on Investing Articles

Investing Articles

3 of my top FTSE 250 stocks to consider buying before April

Buying undervalued UK shares can be a great way to generate long-term wealth. Here, Royston Wild reveals a handful on…

Read more »

Ice cube tray filled with ice cubes and three loose ice cubes against dark wood.
Investing Articles

Just released: our 3 top income-focused stocks to buy before April [PREMIUM PICKS]

Our goal here is to highlight some of our past recommendations that we think are of particular interest today, due…

Read more »

Investing Articles

Is this the best chance to buy cheap FTSE 100 shares in a generation?

I want to buy shares when they're cheap, and sell... never, just keep taking the dividends. And the FTSE 100…

Read more »

Man putting his card into an ATM machine while his son sits in a stroller beside him.
Investing Articles

Could NatWest shares be 2024’s number one buy for passive income?

For those of us looking to earn some long-term passive income, how does NatWest's 7% dividend yield sound? It sounds…

Read more »

Investing Articles

£12K in savings? Here’s how I could turn that into £13K annual passive income

This Fool explains how investing a lump sum can help her build a passive income stream to enjoy in her…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Here’s why Rolls-Royce shares are now set to fly over the £4 mark

Once again, Rolls-Royce shares are crushing the FTSE 100. Should I add to my holding of this stock at the…

Read more »

Investing Articles

1 under the radar FTSE 100 AI stock investors should consider buying

Our writer explains why this FTSE 100 pick could be a shrewd investment with its established experience of using AI…

Read more »

Investing Articles

Does the beaten-down Diageo share price make it a no-brainer buy?

Harvey Jones spent years waiting for the Diageo share price to look like good value, before finally buying it in…

Read more »