Throughout history, periods of volatility have proven to be the best times to find cheap shares to buy. But the stock market is moving up and down like a yo-yo this month.
As such, many are reluctant to put money into an investment portfolio. After all, a host of bearish predictions have begun to emerge about another looming crash.
So is it too early to start capitalising on seemingly cheap UK shares?
Timing the market seldom ends well
In the short term, the stock market is incredibly unpredictable, especially during times of volatility when emotions are running high. Trying to pin-point the pinnacle of human pessimism is impossible. While a few succeed, this often boils down to pure luck rather than skill. And relying on luck isn’t exactly prudent investing.
There are many reasons to have a negative view of the stock market right now. Inflation is at record highs, interest rates are rising rapidly, supply chain shocks continue ravaging businesses, and we’re also in the middle of a cost-of-living crisis.
So it’s not surprising that doomsday predictions are flooding the headlines. Yet despite all this negativity, the macroeconomic situation is actually improving. As highlighted in the government’s latest budget.
The UK is no longer expected to fall into a recession, inflation is on track to return to the target of 2.5% by the end of this year, and unemployment is predicted to rise to no more than 4%.
Forecasts always need to be taken with a pinch of salt. But such results go entirely against the predictions of a stock market crash in 2023, and indicates the time is ripe for finding the best shares to buy.
Waiting for an event that may never occur could also create enormous opportunity costs. Just look at the predictions of Dr Michael Burry. He’s an ex-hedge fund manager that correctly anticipated the 2008 financial crisis and is among many bearish investors warning to stay away.
But it’s important to note he’s been predicting a global financial meltdown since 2017. And even after all the recent volatility, those who listened have missed 62% returns from the S&P 500 and 31.5% gains (including dividends) from the FTSE 100.
Focus on the long term
Whether the stock market will crash in 2023 is anyone’s best guess. If it does, then even investing in the best UK shares could be a disastrous move. At least in the short term. But if it doesn’t, investors could miss out on a rare buying opportunity that may not materialise again for another decade.
So what is the right course of action? The answer ultimately depends on an individual’s risk tolerance.
Those capable of stomaching short-term volatility can capitalise on today’s discounted valuations while still hedging against further downside risk using a very simple strategy – pound cost averaging.
Instead of throwing all available capital into the markets in one lump sum, investors can spread it across weeks or even months. That way, if prices continue to fall, more shares can be bought at even better prices.
