The recent stock market crash may have dissuaded some investors from buying UK shares in their quest to make a million. Their volatile performance and uncertain outlook may mean investors are holding cash or other lower-risk assets.
However, buying undervalued shares after a market decline could prove to be a sound move. It’s a strategy that’s been used successfully in the past by star investors such as Warren Buffett. Through purchasing high-quality businesses when they trade at low prices, you can use the stock market cycle to your advantage.
Booms and busts
The recent market crash clearly caught most investors by surprise. However, a decline in stock prices is, in itself, relatively common. In fact, indexes such as the FTSE 100 and FTSE 250 have never produced uninterrupted growth. Instead, they’ve experienced periods of boom and bust that provide investors with the opportunity to buy stocks at low prices. And sell them later on at higher prices.
Clearly, buying undervalued UK shares when the economic outlook is challenging is a difficult task. Investors may experience paper losses in the short run, since it’s almost impossible to accurately determine when the market will produce its next recovery.
However, with it having a strong track record of doing so, you can increase your chances of generating high returns from the stock market simply by adopting a long-term stance. This may help you to look beyond any short-term disappointment, and to focus on the potential for share price turnarounds.
Buying shares after a market crash
Following Buffett in buying shares after a market crash may help to increase your chances of making a million. However, this task could be further boosted by adopting his strategy when it comes to which stocks you decide to purchase.
For example, Buffett has always focused his capital on a relatively narrow range of industries. In doing so, he ensures that he fully understands what makes them tick. This may improve his capacity to identify the strongest companies within a specific sector, which could enhance his overall returns.
Furthermore, Buffett focuses on stocks that have a competitive advantage over their peers. For example, they may have a unique product or a lower cost base than their rivals. This may increase their chances of surviving a tough economic period after a market crash. And that could also boost their chances of increasing market share to generate improving profitability.
An uncertain future
Clearly, there’s a chance of a second market crash should investor sentiment weaken in the coming months. Aim to purchase high-quality UK shares in sectors that you understand for the long run while they offer good value for money. That way you could increase your chances of making a million.
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.