I think the markets are presenting one of the best opportunities ever to aim for a million from stocks and shares. In many cases, share prices are on the floor. But their underlying businesses are not.
And I’m not alone in my optimism. John Guerard is the director of quantitative research at McKinley Capital Management. And, according to Barron’s, he recently said his firm is “confident” returns from many stocks and shares will be “substantial” over the next three-to-five years.
Good underlying business trading
To me, that view makes sense. And that’s because it looks like share prices are understating the value of many businesses right now. Shares could rally to better reflect the true worth of businesses when the economic doom and gloom starts to lift.
But I’d go further. I think a rally in stocks and shares could gather even more momentum in the coming years. And that’s because businesses could make decent operational progress if general economic conditions become more benign going forward.
My guess is things will get better. It’s often darkest just before the dawn. And that’s why it can be a good idea to buy stocks and shares when things look bleak.
Meanwhile, one positive and upbeat company report seems to follow hard on the heels of another. And in many cases, the strong trading experienced by businesses is surprising the market. For example, there has been recent positive trading news from companies such as information provider Relx, packaging and paper specialist Mondi, and homewares retailer Dunelm, among many others.
So I’d aim for a million right now by working hard on my watchlist of companies. I’d look for a strong balance sheet, good quality indicators and a runway for earnings growth. And the final requirement would be a valuation that can make sense of a long-term investment in a company’s shares. And with all the pessimism hanging over the markets right now, there is plenty of good value around.
Research and stock-picking
Good stock-picking is key to my plan. But, realistically, it’s unlikely I’d be able to turn £30k into a million in Guerard’s timetable of three to five years. However, I don’t have to because another key part of my plan is to invest for the long term.
As an illustration, I could aim to match billionaire investor Warren Buffett’s record of compounding average annual returns of 20%. And if I did that, it would take around 20 years to hit the magic million.
However, positive returns from stocks and shares are not certain or guaranteed. And I could even lose money over time if I happen to pick businesses that develop operational problems.
Nevertheless, even lesser rates of annual return are worth compounding. And the risks that come with shares aren’t going to stop me trying to invest well and aim for a million pound portfolio.
