Recently, the stock market has experienced a tumultuous period marked by increasing inflation and the persistent threat of a recession.
With that in mind, investors can be forgiven for thinking it could be a bad time to invest money in the UK stock market.
Nonetheless, I’m convinced that now could be a once-in-a-decade opportunity to buy cheap British shares. My aim is to boost my prospects of building a bumper second income stream. Here’s why.
Learning to be greedy when others are fearful
To clarify, nobody is able to predict financial markets. After all, the future simply has far too many variables to be predictable. What’s more, trying to anticipate the market can be dangerous and counterproductive.
But the good news is that I don’t need a crystal ball to make money and build a strong passive income stream.
Certain seasoned investors stand by the maxim that it’s wise to buy shares when stock markets are low.
Take the most famous investor of all, Warren Buffett, as an example. He believes in the idea of being fearful when others are greedy, and greedy when others are fearful.
This strategy is based on the idea that an investment’s value will rise when the market picks up again.
UK shares could be significantly undervalued
The combination of a looming threat of a recession and rising inflation has taken its toll on the stock market. As a result, British shares are significantly undervalued, according to the analysts at Schroders.
They argued back in May that neglect of UK equities has pushed valuations to exceptionally cheap levels just about every way you look at them.
While the FTSE 100 index is almost flat so far in 2023, some companies are continuing to grow. In addition, others appear to be coping with the cost-of-living crisis relatively well.
Provided growth continues, I’m confident this could be an outstanding opportunity to buy cheap shares and hold them for the long term.
By making the most of this window of opportunity, I can continue working towards my goal of building a bumper passive income stream.
My favourite dirt-cheap British shares
To achieve this, I’m constantly on the lookout for companies boasting juicy dividend yields that look well covered at current levels.
As a result, some of the stocks I’m keeping my eye on at the moment include Legal & General (dividend yield: 8.5%, P/E: 5.9), Rio Tinto (dividend yield: 8.1%, P/E: 7.8) and Imperial Brands (dividend yield: 7.8%, P/E: 6.7).
All three companies have a price-to-earnings (P/E) ratio below the FTSE 100’s average of around 8.6. This suggests to me they could be trading at prices below their intrinsic values.
Playing the long-term game
In the end, even if market conditions take a turn for the worse, one of the best ways for me to maximise my returns and boost passive income is to invest for the long term.
It is precisely this tried-and tested-strategy that will give my investments the chance to ride out the inevitable ups and downs of the stock market.
