Billionaire investor Bill Ackman said this week that this is one of the best times to buy shares in a long time. But is that right?
There’s a lot going on in the stock market right now. And I think there are opportunities, but investors should still be careful.
Stock market volatility
There are two major threats facing the stock market right now. One is the conflict in Iran and the other is the rise of artificial intelligence (AI).
The issues are very different, but they have something very important in common. They both have uncertain outcomes.
The situation in the Middle East is much more high-octane. It’s often changing multiple times a day and that makes it hard to keep up.
AI is much more slow-moving. But it’s also less familiar and that makes it harder for investors to find something to compare it to.
All of this means share prices are much more volatile than usual. And that can indeed create opportunities for investors.
Buy on the sound of cannons
There’s a popular saying about investing during war. It tells investors to “buy on the sound of cannons, sell on the sound of trumpets”. It’s attributed to Nathan Mayer Rothschild, during the Napoleonic Wars. And it’s still relevant in an age where drones have replaced cannons.
It’s a bit like being greedy when others are fearful, but better. People are sometimes right to be fearful – because things are changing.
That might be the case with AI. It doesn’t look like a passing fad – the technology is real and it seems to be here to stay.
Wars, however, generally don’t last forever. And while share prices are never the most important thing in conflicts, they do move a lot.
Where to look
One stock that’s been under pressure recently is JD Wetherspoon (LSE:JDW). The conflict in Iran is a dual threat for the FTSE 250 company.
Higher oil prices threaten to both push up its own energy costs and weigh on consumer spending. And the share price is down 15% in a month.
Betting on a quick resolution to the conflict is obviously risky. But my thesis for JD Wetherspoon shares isn’t based on this.
It’s based on the fact that the firm has lower costs than its competitors. And this puts it in a better position to withstand short-term shocks.
That kind of advantage is exactly what I look for in an investment. So I think it could be in a very strong position when trumpets sound.
The best time in a long time?
When Bill Ackman says the best companies in the world are on sale, he’s not thinking of JD Wetherspoon. But the principle is the same.
Uncertain situations can create buying opportunities. And the stock market is facing a unique combination of issues. That means it might well be the best time in a long time to buy shares. But that doesn’t mean things can’t get even better.
The most important thing is to be ready at all times. Buying opportunities can present themselves when investors least expect them.
