It seems to me that enthusiasm for growth shares comes in waves. Typically, growth investors come to the fore in bull markets.
That’s when the chances of short-term or medium-term profits are greatest, certainly. Bull markets outnumber bear markets too, and on average they last around four times as long. But I think waiting for bull markets is a mistake.
In my experience, the same pattern keeps repeating. A new growth prospect appears and few people know about it. Early observers buy in, the price starts to rise, and more people take notice.
Before long, the shares are pushed up into bubble territory, and become overpriced. Then the bubble, as they inevitably do, bursts.
Often these are quality companies with excellent long-term prospects. But their share prices go through multiple boom-and-bust cycles before settling down to sustainable long-term growth.
The best time to buy, surely, is when they’re in one of their bust phases. Like now, for example, when many growth shares are depressed.
ASOS and boohoo are good examples. They’re pioneers in a market that’s potentially enormous, and there could well be very good long-term prospects for both. But both have been through multiple bull and bear phases, each reaching what I considered to be crazy overvaluations at their peaks.
ASOS and boohoo shares are now both down more than 80% over the past 12 months. For investors who see long-term growth prospects in them, isn’t this a better time to buy than when they’re in an overvaluation phase?
Darktrace is at a much earlier stage of its lifecycle. Shares in the cybersecurity technologist soared in 2021, reaching a heady valuation. Then came the critics, amid accusations of being all style and no substance.
The result is a 38% share price fall over the past 12 months. It’s clearly risky. But anyone who sees long-term growth here should see this as an opportunity, shouldn’t they? It is, surely, a better time to buy now than during the late 2021 bubble.
Cryptocurrency miner Argo Blockchain has fallen 73% over the past 12 months, following a meteoric rise in early 2021. Bitcoin and other cryptocurrencies have been on a slide too, which seems to be the reason.
But crypto-enthusiast sites show there’s plenty of long-term bullish sentiment. I have no idea where Bitcoin will go next and have no intention of trying to guess. But for investors who see long-term gains, surely now would be a good time to buy Argo, wouldn’t it?
US tech bargains
The same goes for all those US Nasdaq stocks that have fallen. The tech-heavy index is officially in bear-market territory, having lost 30% since November. So investors who like the look of US growth shares will presumably be getting their spare cash together to buy some, won’t they?
I’m not making the case for any of these individual shares. No, they all carry risk and investors needs to do their own research. My only point is that times like these, in 2022, are surely better for getting into growth shares then when they’re on a big climb.