I’m getting ready for a stock market pullback. And the way I’m preparing is by working hard on my watchlist. So, if and when the reversal comes, I’ll be ready to pounce on the stocks that interest me.
Of course, there’s nothing unusual about me working on my watchlist of great stocks I’d like to own one day for the long term. But the chorus of voices is getting louder from skilled market watchers who are calling out excessive bullish sentiment. And many analysts see bullish sentiment as a danger signal.
Does a stock market pullback matter?
In a note last Thursday, for example, Mark Arbeter of Arbeter Investments produced a list of extreme sentiment readings. And also last week, analysts at Bespoke Investment Group pointed to elevated sentiment levels. Meanwhile, Mark Minervini has been sounding similar warnings since the end of November.
One thing these commentators have in common is they’re all American and talking about the US markets. And as a fundamentals-watching long-term investor myself, I could argue that it’s just ‘noise’ to be ignored.
Indeed, over very long periods of holding stocks, minor market ups and downs become insignificant. But, as a fundamental investor who analyses the underlying businesses behind stocks, I’m always looking for opportunities. And one of the ways to get a great deal with stocks is to buy them when they’re cheap. And that happens when the stock market marks share prices down and the underlying fundamentals remain strong.
There could be a window of opportunity ahead
Meanwhile, based on past performance, UK shares tend to follow US markets down when they plunge. So, if the analysts are right, there could be another window of opportunity opening soon. And with ongoing concerns such as Covid-19 and the Brexit process, I reckon another dip in the markets seems likely.
And we see so many articles inciting us to buy cheap shares when markets crash or retrace. Billionaire investor Warren Buffett, for example, is always looking for great businesses selling at fair prices. Then he holds onto those shares for a long time while the businesses grow and the stock market marks the valuation back up again.
I don’t think it’s a good idea for me to try to time the market too much when I’m investing for the long haul. And I’ll keep putting regular monthly investment sums into shares and share-backed investments, whatever happens next with the general stock market.
But if another correction, plunge, or even a full-on crash does arrive, it would be a missed opportunity if I didn’t take advantage by buying some quality stocks.
Whether market weakness arrives soon or not, I’m going to keep working hard on my watchlist. Indeed, as Zig Ziglar said: “Success occurs when opportunity meets preparation.”
