Why I’d buy shares now to generate market-beating returns

Times of high uncertainty are often the very best times to buy shares. This is usually when share prices are most attractive, writes Thomas Carr.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

There’s always some degree of uncertainty whenever we buy shares. We never know what’s going to happen in the future. We never will. It’s just that lately this uncertainty has been above normal levels. But that isn’t a bad thing for adventurous investors. In fact, it creates the kind of buying opportunities that allow investors to achieve above average returns and beat the market in the long term.

If there was no uncertainty, then all investors would come away with the same returns, and it would be impossible to beat the market. There certainly wouldn’t be any opportunities to double your investment. I think it’d be a bit boring, too. 

Buy shares during high levels of uncertainty

In general, higher levels of uncertainty will result in lower share prices. This isn’t because the underlying companies have become worse. Instead, it’s because investors lose confidence in future prospects, and reduce their valuations accordingly. This is logical. If you’re less sure of a company’s ability to maintain its profits, then your valuation of the company will be lower and you’ll be less inclined to buy shares altogether.

The problem is that investors often overreact to short-term news and events. That is, in times of uncertainty, we become overly pessimistic. We fail to make an accurate judgement of what is currently happening and how it will affect a company’s earnings in the future. This makes us sell shares when we shouldn’t, and not buy shares when we should. The result is that in times like this, top-quality companies trade at attractive prices.

I think now is a great time for investors to buy shares. I believe that some way or another, we’ll deal with and overcome Covid-19. Once this happens, I think share prices will move upwards and once again trade at the multiples that they have done in the past. Investors that buy shares now will likely be rewarded with outsized returns.

We have only been dealing with Covid-19 for six months. I think that’s nowhere near long enough for us to change our entire judgement of the next 10 to 20 years. If businesses, economies, and stock markets could recover from the Second World War, which lasted for six years, then I think they will recover from this.

Huge gains 

We’ve already seen how this works over the last few months. Since reaching their lows at the end of March, share prices have since shot up. The FTSE 100 has risen by over 20%. Some of the shares that were hardest hit have seen their share prices double. Investors have been rewarded with huge returns, for taking on extra risk and investing in uncertain times. This is nothing new. This is what happens. It’s a feature of stock markets and human behaviour. Even more so when central banks have pumped so much money into the financial system.

Besides buying shares now simply to take advantage of cheap share prices, we should also be investing to protect our money from inflation. Leaving our money in the bank – where interest rates are so low – is going to result in its value being eroded. Over a long time frame, the effects of this can be disastrous. That’s why I’m committed to buying shares through the uncertainty and beyond.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Thomas 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »