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Why ‘Britain’s Warren Buffett’ expects UK shares to surge and why I’m investing like mad

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Are you a bull or a bear right now when it comes to UK shares? It may surprise you to learn that I’m extremely bullish. I see a bright future for the stock market and those who have the confidence to invest now.

The big rally in UK shares

One factor driving my optimism is the huge amount of pessimism that seems to be around among many investors. Over and over again I read articles warning of a second stock market crash. And people fretting about economic downturns that might be caused by factors such as the pandemic, or Brexit, or some other worry.

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But I think the strength of the rally we’ve seen in many sectors since the spring shows us what can happen when many people hold a similar opinion – the market tends to move the other way! And there are good reasons for that. With the majority sitting on their hands and not trading UK shares, it doesn’t take many bulls to move the market with their share purchases.

The spring rally went on and on, leading some to brand it a typical ‘lock-out’ rally. Those being locked out were the previously bearish investors who, realising their mistake, wanted to get back in. But they also felt sure the rally would stop and correct, allowing them a better entry point. Of course, the pause never came and they remained effectively locked out of participating because of their tactics.

Meanwhile, we’ve seen some powerful operational performances from many businesses in support of the rally from the lows through the pandemic. Just last week I reported on the strength of trading from homewares retailer Dunelm, for example. The business operates in a resilient sector and has adapted well from changing consumer patterns through the crisis.

Terry Smith could be Britain’s uber-bull

Many firms are thriving. And recently my Foolish colleague Royston Wild wrote an interesting article pointing out just how bullish Terry Smith is about shares. Smith is one of a handful of UK fund managers sometimes referred to as ‘Britain’s Warren Buffett’. That’s because of the similarities between the two investors’ investment strategies. He’s done well managing his Fundsmith Equity Fund, clocking up an annualised rate of return of almost 20% leading up to the pandemic.

Smith said in a Sky News interview that today’s economic conditions are remarkably like those of just over 100 years ago. Back then, we had the so-called Spanish flu pandemic. This was followed by a decade labelled the Roaring Twenties. It was a time of amazing prosperity with an economic and stock-market boom.

And it’s tempting to imagine that we could be about to see our own 21st-century Roaring Twenties. Why not? With the pandemic having accelerated many economic changes that were already playing out, many sectors could continue to thrive. And that will likely be reflected in the stock market, just as it has always been.

We’re already seeing signs of booming upcoming sectors such as e-commerce, digitalisation, IT, technology, healthcare and others. It’s hard to predict what will happen next, so I don’t try to. Instead, I simply fill my share accounts, ISAs and SIPPs with shares that are performing well driven by strong operational progress. To me, that’s a better strategy than aiming for low valuations in beaten-down businesses.

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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.

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