This year’s stock market crash has thrown up an unmissable opportunity to buy cheap UK shares. If you are on a quest to make a million before you retire, you need to take advantage of moments like these, as you can pick up some amazing FTSE 100 bargains.
It takes courage, though. Stock markets are volatile and the economic outlook is uncertain. Some may prefer to leave their money in cash instead. That is understandable, but also costly. In the longer run, the stock market beats almost every other investment, and definitely cash. If you can buy UK shares when they are cheap, you can turbo-charge your returns.
Buying undervalued shares after a stock market crash has been a sound move in the past. Warren Buffett, arguably the world’s greatest investor, has always followed this strategy. He likes to buy high-quality businesses when they trade at low prices, then wait for them to recover.
I’d buy cheap UK shares today
It is always better to buy at the bottom of the market cycle, rather than the top. I think we have this opportunity today. Please don’t squander it. As Buffett himself said: “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”
Indexes such as the FTSE 100 and FTSE 250 do not move upwards in a nice, even straight line. They never have and never will. Instead, they go through periods of boom and bust.
Wise investors look to buy UK shares during the busts, rather than the booms. That way you can buy them at reduced prices. You should then aim to hold for years, or rather decades. With luck, you can sell them later at much higher prices.
If we do get a second market crash after you invest, remember this. You have only suffered a paper loss (provided you don’t do anything daft, like sell at the bottom of the market). By investing for the long term, you can ignore short-term volatility, and sleep soundly at night.
Warren Buffett has been here before
If you buy shares after a market crash, as Buffett likes to do, you have a better chance of making a million. You have to pick your stocks carefully, though, as he does.
One mistake investors make is to over diversify, say, by buying a stock in every sector of the FTSE 100. If you do that, you might as well buy a tracker fund. You need to be smarter than that. As Buffett said: “Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing.”
Personally, I would look for companies that offer a product or service that nobody else does, and rivals would struggle to replicate. Given today’s worries, I would also target companies with strong balance sheets, minimal debt, and the strength to continue paying dividends.
As always, you should aim to hold for the long term, just like Buffett does.
Harvey Jones 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.