Investing in the stock market can be a great way of building wealth. And having the courage to keep buying shares when others are looking to get out is how some of the best in the business have done so.
Right now, the FTSE 100 is within 6% of its recent highs. But with the FTSE 250 (down 11%) and the S&P 500 (down 17%) firmly in correction territory, I’m looking for long-term opportunities.
Volatility
I think that the best returns in the stock market come from buying shares in strong businesses at good prices. And one of the best ways to find good prices is when everyone else is looking the other way.
Warren Buffett knows this better than most. At a time when American Express was in the middle of a scandal, the Berkshire Hathaway CEO made a big investment in the company.
That decision has paid off spectacularly. The initial $1.3bn investment has a market value today of around $24bn (and that’s not including the $40m in dividends that Berkshire has received).
Finding these opportunities can be difficult (especially without his cash and research resources). But when share prices start falling across the board, it’s much easier for investors to find something they like at an attractive price.
That’s why a stock market correction can be a great opportunity. The most recent one has been caused by rising interest rates weighing heavily on two sectors in particular.
US banks
The first is US banks. With rising interest rates leading to the failure of SVB Financial and Signature Bank, share prices across the sector are under pressure.
I don’t think the risks across the board are equal though. I think the bigger banks are much less likely to experience liquidity issues than their smaller counterparts.
They’re more closely regulated, have better asset portfolios, and more stable deposit bases. But their share prices have also been falling and Citigroup in particular looks to me like a bargain.
I’ve thought that the stock was undervalued for some time now. And the additional decline in the share price last week only makes it look more attractive to me.
The risk with the stock comes from its complicated restructuring process. But an extra 7% discount to the company’s share price just gives me a bigger margin of safety when pricing this in.
UK real estate
The other area that’s been hit by rising interest rates is the property market. And it’s the industrial sector that has seen the biggest losses.
Companies that make their money leasing warehouses and distribution centres have seen the value of their assets fall sharply. But I think there’s a big opportunity here.
Rent collection across the sector is strong and more warehouse space is being leased than ever before. I think that makes Warehouse REIT – an industrial property specialist – attractive.
There’s a risk that a recession might act as a significant headwind here. But I think this could be a great stock to own for the long term, especially for an investor buying at today’s prices.
The stock being down 6% over the last week just makes it look like more of a bargain to me. I’m looking to take advantage of some great prices on offer from the stock market correction.
