The stock market is falling again. After a great start to June, last week was disappointing. The FTSE 100 index ended the week almost 6% down from the week before. As I write, it’s trading below 6,000. If it closes below 6,000 today, it’ll be the first in three weeks. Bad as this sounds, it’s actually a good time to invest your first £500.
Here’s why. Stock markets can react sharply to short-term developments. But over time, growing companies with strong track records stand out, reaping rewards for investors. If I invest my first £500 when stock prices are especially depressed, I’m likely to make even bigger gains. Most of these gains are from the increase in the value of my capital. In these uncertain times, companies have slashed dividends. So generating passive income isn’t as easy as it was a few months ago. I’m focusing on growth stocks in this environment.
Separating the risers from the fallers
But the catch is that it’s not always easy to identify which stocks are going to perform over time when investing your first £500. If we look at shares that are part of FTSE 100, there are many of them that are in a state of decline. Consider well-known retailer Marks & Spencer. There’s hardly anyone who doesn’t know this brand. Yet bricks-and-mortar retailers have suffered in recent years as online shopping becomes the go-to option for buyers. M&S has been struggling as a result of this (and other issues) and tumbled out of the FTSE 100 last year.
On the other hand, there are others that are gaining prominence. Online retailer Ocado (LSE: OCDO), in sharp contrast to M&S, is one of them. It joined the FTSE 100 group of shares in 2018. The coronavirus crisis and ensuing lockdowns have strengthened its position further. It’s still a loss-making company, but I wouldn’t let that deter me when investing my first £500.
Unlike M&S, which is likely to struggle unless it manages a dramatic turnaround, Ocado’s likely to go belly-up only if it does something dramatically wrong. So far though, it seems to be doing more right than wrong. It just raised £1bn with a combination of debt and equity funding to expand further.
Investing your first £500 in promising prospects
Clearly, investors believe in the Ocado story. That’s part of what’s driving its share price. From the time I wrote about it almost a year ago, Ocado’s share price had risen by 57% at the last close. This is after it fell in the past few days. At its highest level in 2020, it would have given me a return of almost 80%. And I’d like to reiterate that this is in less than a year. I imagine my first £500 would more than double at least with a longer-term time horizon. I’m looking at more such shares to put my money in.
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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.