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Forget a second stock market crash! Bargain stocks may not remain cheap for much longer

If you waiting on the sidelines for a second stock market crash in 2020, you may be disappointed.

Economies are grinding back into life around the world as lockdowns progressively ease. And in the UK, the government proves time and again that it’s willing to throw huge sums of money at helping struggling sectors.

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A good example is the recent news of a plan to help the culture sector with a £1.57m cash boost. Minister Oliver Dowden is on record as saying: “I want all our cultural institutions to return to normal.” Indeed, the secretary of state for Digital, Culture, Media and Sport indicated to the media that outdoor performances will likely be allowed “very soon,” and socially-distant performances “later over the summer.

Fading prospects for a second stock market crash

What does this all mean for shares? I reckon it means the prospects of a second stock market crash, like the one we saw in the spring, are fading. Look what happened on Saturday, for example. Many establishments, such as pubs, restaurants, hairdressers and others, reopened. And the easing of social-distancing guidelines helps their viability as businesses. Now, the rules allow one-metre-plus-mitigations if two metres proves to be unachievable in some circumstances.

It seems in the UK that medical and scientific advisors, and the government, are determined to balance risks. And there appears to be a general acceptance that if the economy is allowed to crash and flatline, we could end up with social and medical problems on our hands to rival the severity of the Covid-19 pandemic.

Meanwhile, local actions are addressing flare-ups in coronavirus infections, such as the return to lockdown in Leicester. Indeed, a countrywide lockdown because of a second peak in the virus seems unlikely to me. And that’s why I reckon there’s never been a better time than right now to buy the shares of companies with high-quality underlying businesses. Especially if you’re aiming to build wealth by investing over the long term.

Focusing on the quality of the underlying business

I admit the coronavirus situation is something to worry about when it comes to shares. But there’s always something to worry about in the world of investing. Nevertheless, stock markets have performed well over time frames measured in decades. And I reckon that’s because businesses are generally good at adapting to changing economic circumstances. Many can also adjust to an inflationary environment by raising selling prices.

We can’t have certainty when it comes to investing. But we can iron out some of the volatility in the markets by adopting a regular programme of investment. Such as putting money into shares and share-backed investments each month. And we can increase the odds of a successful long-term outcome by choosing shares carefully.

For example, a strong focus on the quality of the underlying business can work well alongside calculations to determine the cheapness of shares. But if the economic news keeps improving, bargain stocks may not remain cheap for much longer.

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Kevin Godbold has no position in any share 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.