When investing in the stock market, it’s always important to be careful. But I think that falling share prices are offering some terrific opportunities for investors at the moment.
Lower share prices mean that investors like me get more for their money than they did before. But I also think anyone buying today might well need to be patient.
Share prices
Lower share prices are good news for investors like me who want to buy shares. It means that we get more for our money.
A year ago, investing £1,000 into Amazon.com would have bought me 7.5 shares. Today, that same amount would get me 13.7 shares.
Likewise, with Halma, buying 50 shares 12 months ago would have cost me just over £1,557. Right now, though, I could buy the same 50 shares for less than £1,080.
Obviously, as someone looking to invest £1,000 in Amazon stock, I’d rather have 13.7 shares than 7.5 shares for my money. And I’d rather pay £1,557 than £1,080 for 50 shares in Halma.
That’s why a falling stock market is a good thing for those of us who want to buy shares. I’m always happy to pay less for something I want to buy than I did before.
Patience
According to Peter Lynch, the most important organ when it comes to investing in the stock market isn’t the brain. It’s the stomach.
Buying shares at low prices is no good unless I’m willing to hang on to them. If I lose confidence and sell my investments even lower, then I won’t do well no matter what price I bought at.
Predicting what the stock market will do over a period of weeks or months is difficult. Over a number of years, though, share prices have historically tended to go higher.
Even after the events of 2022 (so far), the FTSE 100 and the S&P 500 are both higher than they were five years ago. In other words, it’s important for an investor like me to be prepared to wait.
That’s why patience is extremely important. I have a view that the stock market will go up over the long term, but I need to make sure that I’m willing to wait for that to happen.
Stock market investing
Investing in the stock market comes with both risk and uncertainty. Not every stock that has come down in price is a bargain or a great opportunity.
There’s never a guarantee that any stock will recover to the price it once sold at. And for those that do, it’s impossible to be certain when this will happen.
In order to give myself the best chance in today’s stock market, I’m focusing on two things. The first is buying quality businesses and the second is paying reasonable prices.
The way I see it, sticking to investments that have these two features gives me the best chance of making money over time. And a falling stock market makes it that bit easier to do.
