Investing in UK shares while they’re cheap is hardly a new concept. It’s a proven strategy that’s been used for decades, generating enormous wealth for shrewd investors. Why? Because buying a firm below its intrinsic value is the definition of buying low to sell high.
Of course, in practice, determining which companies are trading at a discount versus being a value trap is pretty tough. And the quality of an investment is quite subjective, which results in a wide range of opinions that often conflict with each other.
However, investors like Warren Buffett seem to have cracked the code. And those who can develop their own successful strategies may be able to double their money far quicker than just by tracking the stock market with an index fund.
Capitalising on market cycles
With the stock market still reeling from last year’s correction, there are plenty of UK shares trading at a discount. While there are always buying opportunities to be found, volatile periods make the search an easier process.
And apart from being able to secure bargains, investors will likely see another portfolio boost from recovery tailwinds as a new bull market kicks in.
That’s why, when looking throughout history, the months following a crash or severe correction have been some of the best times to start buying. And I don’t see any reason why 2023 will be any different.
Of course, volatility doesn’t just disappear overnight. Even heavily discounted companies may fall further if economic conditions worsen before they improve. Therefore, when investing in such situations, I take a pound-cost averaging approach.
Instead of investing all my capital in one lump sum, it may be wiser to spread my buying activity over the course of weeks, or even months. That way, should short-term volatility drag valuations of top-notch enterprises down further, I still have some capital at hand to snap up more shares at an even better price.
Making a 100% return
Doubling my money isn’t always as challenging as many believe. After all, the stock market offers an average 10% return each year, so I can theoretically achieve this goal after around eight years. But what if I wanted to accelerate this process?
Stock picking paves the way for higher returns. And successfully identifying wonderful businesses today trading at discounted prices will likely translate into market-beating gains that would cut years off the waiting time.
That’s obviously far easier said than done. And if executed incorrectly, I may accidentally destroy wealth instead of creating it. But with so many British stocks trading at low valuations right now, the odds certainly appear to be in my favour.
That’s why I’ve already been steadily bolstering my positions since the start of 2023, despite the risks.
