Could now be a great moment to try and scoop up some bargains in the stock market? I think it might be and would happily invest in shares right now if I had spare cash to invest.
But could I be wrong?
After all, many UK shares have been struggling lately. Take my holding in Legal & General as an example. Its shares have drifted down 10% over the past year and are now 19% lower than five years ago. Could it really make sense for me to put more money into a stock that has been heading lower?
Investing not speculating
I reckon it could do, for several reasons.
Past performance is not a guide to what will happen next. So, while a lot of FTSE 100 shares such as Legal & General have been falling lately, that does not mean that they will keep on getting cheaper.
But, in a way, it does not really matter to me. That is because I am an investor not a speculator.
Investing for the long term
A speculator may look at a share price chart and try to guess where it will go next, hoping to sell at a profit.
An investor, though, is less interested with the direction of a share price chart. Instead, the focus when deciding whether to invest in shares is on valuing the underlying business.
What is it likely to be worth in the future? How does the current share price compare to that?
From a long-term investing perspective, if I believe a share is significantly undervalued relative to its future business prospects, I would be happy to buy it and hold.
Even if the price then goes down, that would not bother me. I would hope that, over the long term, its real value would be clear and the price would move upwards accordingly.
Bargain hunting in the UK stock market
In fact, from that perspective, falling share prices could be a good thing. They offer me the opportunity to buy into businesses I like even more cheaply than before.
That has been my reason to buy into Legal & General this year, as well as other FTSE 100 shares that have seen price falls, such as Vodafone.
I do see some challenges to the UK economy in the coming year or two, from high interest rates to weak consumer demand. But, as a long-term investor, my focus is on a greater time horizon. Looked at like that, I think the current valuations of many blue-chip shares are lower than their real value.
On top of that, lower prices have pushed up dividend yields. Legal & General yields 9.4% and Vodafone yields 10.2%, for example.
Dividends are never guaranteed, but if they are maintained, opting to invest in shares today could reward me in years to come — while hopefully also offering some opportunity for capital gain.
