At The Motley Fool we believe stock market crashes like that of early 2020 provide a terrific investment opportunity. They allow us to buy five-star UK shares at little cost today. And then make a killing on them once the inevitable economic recovery drives their prices skywards.
A large number of Stocks and Shares ISA investors made millions following the 2008 financial crisis with such a strategy. It seems a great many of UK share investors are aiming to replicate their successes and make fortunes of their own.
Dip buying rises
According to exchange-traded fund (ETF) provider GraniteShares, 16% of existing share investors have started trading more since the coronavirus outbreak. And 3% of the adult population (1.5m people) have bought UK shares for the first time in recent months.
Almost one-third (30%) of these said that the stock market crash “presented a good buying opportunity.” Meanwhile, 22% of respondents said the ‘fear of missing out’ prompted them to buy UK shares when prices began to recover. Exactly a quarter of those questioned said they wanted to take advantage of increased volatility.
A wasted opportunity?
While there’s clearly been some dip buying going on, I’d argue UK share investors haven’t been making the most of the market crash. The FTSE 100 struggled for traction all through the summer. It’s just slipped to new six-month lows on Thursday following the introduction of more Covid-19 lockdown measures in London.
This lack of significant dip buying in recent months means a lot of UK shares still appear too cheap to miss. Investors clearly need to be careful before buying British stocks given the threat of a painful and prolonged economic downturn. But there are still plenty of quality UK shares out there that should deliver brilliant returns despite the macroeconomic challenges.
For example, I don’t think Caledonia Mining Corporation’s cheap valuation reflects the probability that gold prices will soar again. It trades on a forward price-to-earnings (P/E) ratio of below 8 times at current prices. Gold stepped back recently on strong profit booking after it rocketed to record highs earlier in 2020. However, the ongoing health crisis, a developing financial crisis, and blanket central bank monetary support should send gold values rocketing again before long.
I’d buy Calendonia shares to ride this trend instead of buying the metal itself. This way investors can receive dividends too (the yield on this UK share incidentally sits at a meaty 2%).
Helping you discover cheap UK shares
Caledonia Mining is just one top-quality stock trading far too cheaply today. But it’s not the only cheap UK share I’m thinking of buying for my own ISA. As I say, the London Stock Exchange is packed with great UK shares like this that are being overlooked. And The Motley Fool, with its epic library of free special reports, can help you dig out even more.
Royston Wild 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.