£2,000 is a decent amount of money to invest in top UK shares. And I reckon it’s a good time to invest in the stock market right now. But I’d be choosy.
Decent stock opportunities are rare
Billionaire investors Warren Buffett and his business partner Charlie Munger are on record as saying decent stock opportunities are rare. And they’re worth listening to because both men became billionaires by investing in stocks and businesses.
And one thing they’ve said is the stock market is made up of many average enterprises and lots of terrible ones. But there is also a handful of great companies. And Buffett calls such beasts “wonderful” businesses. However, they are only good because they make a lot of money and tend to operate with decent profit margins.
Most often, Buffett’s wonderful businesses will enjoy some kind of competitive advantage in their operating markets. He describes it a little more colourfully by saying they have an economic moat of some kind. And that’s just like the moat around a castle keeps attackers at bay. So an economic moat around a business can keep the competition in check.
However, despite targeting such wonderful businesses, Buffett and Munger rarely buy them or their shares. Identifying a decent business is only part of the puzzle. Another part is to buy when the stock market offers an attractive valuation. And that’s often a difficult trick to pull off. That’s because many good businesses tend to be popular, which often leads to high valuations on the stock market.
Setbacks can deliver opportunities
Munger and Buffett tend to find better valuations during setbacks. And that can be a general stock market slump or some kind of short-term operational challenge within a business. However, buying distressed stocks only tends to work out well if the underlying business still has a long, multi-year runway of growth ahead of it. And that’s the third part of the puzzle.
Therefore, with £2,000 now, I’d aim to buy the shares of great businesses when the valuation is lower than previously. And I’d aim to look beyond short-term challenges at a company’s potential to grow its profits in the longer term.
Even with that kind of strategy, there are no guarantees with stock market investing. And I could even lose money on the stocks I choose rather than making money over time. Nevertheless, I’m prepared to embrace the risks in the pursuit of long-term gains. And I’m seeing plenty of stock opportunities in today’s markets.
Shares I’ve been buying
For example, I recently bought shares in waste-to-product company Renewi. And I also bought some shares in Cerillion, the billing, charging and customer relationship management software solutions provider. Another stock I bought was the fast-moving consumer goods giant Unilever. The valuation looked lower than it had for a long time and the company had released some positive news.
Time will tell whether or not these investments will be successful for me. But I’m seeing plenty of other opportunities right now as well. And that makes me feel optimistic about the prospects of the stock market in general.
