UK shares crashed in March, but many of them made a remarkable recovery. Now the rumour mill is rife with the expectation of another stock market crash. Pandemic restrictions on movement, a recession and the dark cloud of Brexit are all contributing to these whispers.
And the approaching US election could also have a knock-on effect on UK shares, because where the Dow Jones goes, the FTSE 100 often follows. Then there’s the US-China trade war and rising international tensions over Covid-19 responses.
Take Warren Buffett’s lead
All this doom and gloom could send any would-be investor running for the hills. But as long as there’s a stock market, there’ll be ordinary people making money. Rather than being put off by the fear mongering, take your lead from the professionals by observing how they invest.
Two such investors are billionaires Warren Buffett and Terry Smith. They take a long-term approach to investing and look for value in the companies they buy shares in. Buffett aims to buy low and hold for years. He only sells once profits have been realised and the company seems to have no further room for growth, or the sector is facing untold risk. Smith follows a similar premise, buying valuable companies with a profitable future ahead, strong margins and cash conversion.
Discovering quality in UK shares
I’d buy UK shares because there are many top-quality companies operating within the UK. And I think they’ll continue to be for many decades to come. When an entire market crashes, it provides an opportunity for savvy investors to pick up bargains. It also magnifies weakness and shows where companies were leveraging themselves on too much debt. Covid-19 has shown Cineworld to be an example of this.
While the travel and entertainment industries have suffered since the March market crash, the gambling industry has thrived. Flutter Entertainment has seen its share price reach all-time highs. Pharmaceuticals and technology have also done remarkably well. AstraZeneca’s share price has surpassed expectations and FTSE 250 star, Computacenter, has done the same.
Buying UK shares is straightforward. The key is not to get carried away by hype and hysteria. Before taking the plunge to buy shares, be sure to research the companies you’re interested in owning a piece of and be confident in your choices.
Plan for the next market crash
If you expect another stock market crash is imminent, then the best thing you can do is plan. If you’ve a clear idea of the stocks you want to own in your portfolio, you can be ready to swoop in and buy shares in your favourite companies when the prices hit rock bottom.
This is easier said than done. If you’re buying when everyone else is selling, it can be disconcerting. But the world’s most successful investors take this approach, and that’s how the markets keep surviving.
If you want to be like Buffett, invest in high-quality companies that have an edge on their competition. If they offer a dividend, all the better. Because that gives you a guaranteed return on your investment through good times and bad.
I think there are many brilliant companies listed in Britain, and UK shares make an excellent addition to a long-term investor’s portfolio.
Kirsteen has no position in any of the shares mentioned. The Motley Fool UK owns shares of Flutter Entertainment. 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.