Yesterday, the Bank of England raised interest rates by 75 basis points (0.75%). This follows a similar move by the Fed in the US, 24 hours earlier. This is all in an effort to tame runaway inflation, which stands at a 40-year high. With predictions of a deep and protracted recession for the UK economy, should I consider selling my stocks and moving to cash?

Focus on the long term

The first thing I’m not doing is panicking. By historical standards, interest rates are still extremely low, particularly given the fact that inflation is running at 10%.

At the moment, central banks are trapped between a rock and a hard place. They know that if they raise rates too high and too quickly, both the economy and stock market are very likely to crash. However, if they take their foot off the interest rates accelerator pedal, then inflation could get completely out of control.

What’s concentrating the minds of market commentators is how long central banks are likely to keep raising rates before they begin to ‘pivot’. The theory goes that once such an announcement is made, then this will be the cue for stock markets to begin rising again.

As an investor with a long-term mindset, I find this exercise completely fruitless. What I continue to remain focused on is identifying stocks I wish to buy.

Value vs growth

In 2022, investors have been rotating out of growth stocks and into value ones. With the exception of Apple, the FAANG stocks are all heavily down. Meta, for example, is down 70% this year. Does this mean that I see value in such stocks?

What continues to make me nervous about technology stocks, is their valuations. Many of them are still priced for perfection. That’s why many growth stocks have fallen so heavily when they haven’t met analysts’ expectations. DocuSign is but just one example here.

In addition, the longer inflation remains elevated the more likely it is that tech stocks will continue to fall. This is because their present valuations are based on what the market expects their future cash flows to be worth. But when discounted back to the present day, the effects of inflation mean the cash flows aren’t worth as much.

Stock market crash

The truth is that I have no idea whether a stock market crash is on the horizon. And trying to time the market in the hope of predicting one is a recipe for disaster. Yes, there are storm clouds out there, but I also see a lot of value, particularly in the FTSE 100.

Commodities stocks look extremely cheap to me. Both BP and Shell have forward price-to-earnings (P/E) ratios in single digits. That’s despite them having a high degree of certainty with regard to their near-term cash flows.

Banking is another industry where I’m starting to see real value. Rising interest rates are pushing up their net interest income. That said, I’m less keen on banks whose balance sheets are more heavily weighted toward mortgage assets.

Despite all the doom and gloom, I remain optimistic. There are bargains to be had, it’s just a matter of looking for them.

The post As interest rates rise to 3%, is a stock market crash now inevitable? appeared first on The Motley Fool UK.

More reading

• 3,703 Legal & General shares pay £822 yearly passive income
• 5 years ago, £10,000 bought 9,827 Rolls-Royce shares. But how many would it buy now?
• No savings at 30? How investing £5 a day in an ISA could target a stunning second income of £40,208 a year
• Here’s how much an investor needs in Lloyds shares to earn a £125 monthly income
• Down 45% in 5 years, this UK stock now offers a stunning 11% dividend yield!

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Andrew Mackie has positions in BP and Shell. The Motley Fool UK has recommended Apple and DocuSign. 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.

It’s been a tough year or so for investors. Red hot inflation has caused global turmoil. And with a Covid-19 hangover and the tragic war in Ukraine also weighing down on sentiment, it’s no surprise people are fearing a stock market crash.

Despite these fears, I’m staying calm. With the threat of markets tumbling in the months ahead, here’s what I’d do should the market plunge.

The story so far

Before we delve into what I’m doing, let’s start by taking a look at what’s been going on recently.

As mentioned, the reason markets have suffered this year is a result of the macro economy. Inflation has hit 40-year highs in both the UK and the US, jumping above single figures in the UK for July. And while the FTSE 100 is down nearly 3% year to date, the S&P 500 has been as low as $3,636, signifying a 23% year-to-date loss.

Despite these losses, markets made a small rebound from July following the news that US month-on-month inflation fell between June and July. Clearly, investors were beginning to regain confidence.

However, with dire predictions for inflation rates being released by the likes of Goldman Sachs and Citi, it seems the months ahead could be rocky. While Citi warned that UK inflation could reach 18%, stating that the UK energy price cap could reach nearly £6,000 by April 2023, Goldman also recently predicted inflation could peak to as high as 22% should gas prices continue to soar. There’s no doubt this would see a crippling downturn in the stock market.

Remembering my goal

So, with the threat of a market crash on the horizon, what would I do?

First of all, I’d remember how I invest. And that’s for the long term. Within the stock market there are many different types of investors, be it day traders or hedge funds. But as a Fool, I purchase stocks with the aim of achieving some healthy returns in the long run.

What this essentially means is that the turbulence we’re experiencing in the market right now shouldn’t scare me into selling my positions. Volatility is inevitable. And therefore, I need to remember that if I’m patient, my long-term plan of building wealth should bear fruit.

Grasping opportunities

With this said, this doesn’t mean that I should steer clear of the markets. And in fact, what I’d do is the opposite!

A stock market crash presents a great opportunity for me to grab some bargain companies with strong fundamentals. And should stocks fall further, I have a list of companies I’d look to add to my portfolio. This includes the likes of companies such as BT and Lloyds, who have already seen their share prices suffer this year.

Whether a stock market crash occurs in the near future is unknown. And there’s no telling to what extent inflation can continue to rise. However, with my long-term outlook and a keen eye for undervalued investment opportunities, I’m not panicking any time soon.

The post Here’s what I’d do in a stock market crash! appeared first on The Motley Fool UK.

More reading

• 3,703 Legal & General shares pay £822 yearly passive income
• 5 years ago, £10,000 bought 9,827 Rolls-Royce shares. But how many would it buy now?
• No savings at 30? How investing £5 a day in an ISA could target a stunning second income of £40,208 a year
• Here’s how much an investor needs in Lloyds shares to earn a £125 monthly income
• Down 45% in 5 years, this UK stock now offers a stunning 11% dividend yield!

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. 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.

2022 has been characterised by red hot inflation, rising interest rates, and falling markets. The world’s largest index, the S&P 500, has fallen 14% year to date. But before it rebounded in July, the shares reached a low of $3,636, marking a 23% year-to-date loss. Over the course of a year, the index has fallen 8%. Across the pond the situation isn’t nearly as bad, with the FTSE 100 down 0.01% for the year. But this still highlights its stagnant returns.

However, since July, things seemed to have been picking up. So, is now the right time to be investing in the stock market? Or should I be searching for safer ways to grow my capital? Let’s take a look.

The year so far

As mentioned, the reason markets have been suffering is tied to the macro economy. Inflation has been reaching record figures in the last few months, caused by a combination of supply bottlenecks, Covid-19 government intervention, and the Russia-Ukraine crisis. In July in the US, inflation reached 8.7%, and in the UK, it reached 10.1%.

The way that central banks are controlling this sky-high inflation is by raising interest rates. Both the UK and US have hiked their rates. When rates rise, people are more likely to keep hold of their money, as they can earn a higher risk-free rate. This deters them from buying speculative assets like stocks, and stock market valuations usually take a hit.

One of the main reasons that markets have rebounded since July, is the news that US month-on-month inflation fell between June and July. This signified that inflation was coming under control and seems to have restored investor confidence in markets and the wider economy.

However, things are far from plain sailing. Energy prices are still soaring, which is keeping inflation high, and putting pressure on businesses around the world. What’s more, Citi recently announced a forecast of 18% inflation in the UK by January. It also highlighted it expected an interest rate of between six and seven percent to be enforced to control this. If these figures are correct, the UK economy could plunge into recession.

Is now the time to invest?

The good news about the stock market is that there are shares that perform well during recessions and times of economic turmoil. ‘Defensive’ industries like supermarkets, telecoms, and high-dividend stocks are usually a good play, but still carry heightened risk.

As for myself, I’m on the lookout for bargain companies with established reputations. Stocks that are beaten down by negative market sentiment, but still have solid underlying fundamentals. Anything other than such stocks I’m going to steer well clear of. Although the markets have seen a slight rebound, there’s no telling how inflation and interest rates will develop over the remainder of this year. However, I still think that investing in stock is my best bet at building long-term wealth, and as such I will still be investing during this turbulent period.

The post Have we seen the worst of the 2022 stock market crash? appeared first on The Motley Fool UK.

More reading

• 3,703 Legal & General shares pay £822 yearly passive income
• 5 years ago, £10,000 bought 9,827 Rolls-Royce shares. But how many would it buy now?
• No savings at 30? How investing £5 a day in an ISA could target a stunning second income of £40,208 a year
• Here’s how much an investor needs in Lloyds shares to earn a £125 monthly income
• Down 45% in 5 years, this UK stock now offers a stunning 11% dividend yield!

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Dylan Hood 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.

Scary-sounding phrases, like “bear market” and “carnage ahead”, popping up on your news screen can be worrying and unsettling for anyone.

As a stock market investor myself, it’s impossible not to wonder, “Should I be doing something about all this?”

But from my own experience, there are two very good reasons not to panic.

When investing in stock markets, perspective matters

When it comes to investing in shares, perspective is a great thing to have. And as a long-term Foolish investor, it’s the first reason I’m not running around like the proverbial headless chicken.

You and I both know scary numbers make for great clickbait headlines. But what happens if I look at the same thing – but from a different perspective?

For example, if I look at the performance of one of the most popular ETFs available, Vanguard FTSE Allworld (LSE:VWRL), what can I see?

At the time of writing, it had lost over 4% in the last five days: that’s not insubstantial for a well-diversified tracker. It gets worse if I look at the year-to-date performance — that’s down over 10%.

But wait — if I continue to zoom out, I see that over the last five years the exact same tracker has made over 35%. So, despite this year’s losses, that’s still an annualised return of over 6%.

It gets better yet if you look at the same Vanguard ETF over 10 years, working out at an annual return of over 9%.

So yes, it’s easier to invest when stock markets simply rise smoothly. But as a long-term investor, I knew I needed to expect market corrections along the way. 

That’s why when it can seem all doom and gloom, remembering the bigger picture gives me a great reason not to panic.

The importance of a diversified portfolio

Now, it’s all well and good talking about long-term averages on a global tracker, but as a Foolish investor I also hold several individual shares. That can be a different ball game entirely.

For example, if my portfolio only contained Netflix shares, I would be down over 70% this year. And even though it’s still up on a five-year basis, that would be hard to handle for sure.

But here’s the thing: if I’ve done a decent job of diversifying my portfolio, I likely have other shares that have increased in value.

This diversification effect means my portfolio value is far less exposed to those single large shocks — which is another good reason not to fret over the recent stock market moves.

But markets are falling — what should I do?

So should I be doing something about the recent stock market falls? Personally, if anything, I’ll be adding to my investment portfolio over the upcoming weeks. There are several good companies out there with share prices becoming increasingly attractive.

Yes, I may have to see them in the red for a while, but if I choose wisely then eventually my investment portfolio should end up even stronger as a result.

A long-term perspective with a well-diversified portfolio will always give me the best chance of success — as well as my two reasons I’m not panicking over the stock markets!

The post 2 good reasons why I’m not panicking about stock markets appeared first on The Motley Fool UK.

More reading

• 3,703 Legal & General shares pay £822 yearly passive income
• 5 years ago, £10,000 bought 9,827 Rolls-Royce shares. But how many would it buy now?
• No savings at 30? How investing £5 a day in an ISA could target a stunning second income of £40,208 a year
• Here’s how much an investor needs in Lloyds shares to earn a £125 monthly income
• Down 45% in 5 years, this UK stock now offers a stunning 11% dividend yield!

Michelle Freeman holds shares in Vanguard FTSE AllWorld ETF. 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.

Markets are having a pretty tough time at the moment. Year-to-date, the S&P 500 is down over 15%. Even worse is the Nasdaq, down 23% so far in 2022. With the two largest stock indexes in the world both down in double-digits in 2022, is the stock marking crashing? I think not.

Why markets are struggling

In order to fully understand the situation, we need to employ a little macroeconomics.

When the Covid-19 pandemic struck – and the market really did crash – governments across the world quickly acted with fiscal stimulus. That is, they poured money into the economy. They also cut interest rates with the aim of spurring spending to keep consumer confidence in the economy high. This worked in the short term, with the S&P and Nasdaq climbing back 20% in the 30 days after markets initially crashed.

However, investors soon began to take advantage of these low rates, searching for higher and higher returns. Markets surged as a consequence, with growth stocks substantially moving beyond their fundamental values. At the same time, people had more money to spend, and as a consequence of basic supply and demand, prices rose.

Fast-forward to 2022 and we now have steep inflation. The UK government keeps to a strict 2% inflation target, but in April the Consumer Price Index rose by 7.8% year-on-year. This is being repeated across the globe, with US inflation hitting 8% in April. To control inflation, banks contract the economy by raising interest rates. This is bad news for stocks, as people keep less liquid cash because they can achieve higher returns on savings.

In my opinion, the recent hike in interest rates in the UK and US is one of the reasons why markets have contracted. But stocks are simply moving back to their fundamental value – and I feel this is nothing to be worried about.

What about UK markets?

Markets have taken a hit in the US, but in the UK, the FTSE 100 seems to be holding strong. It’s up 0.8% year-to-date, and an impressive 6.4% in the last six months. Over the last 12 months, the index has returned over 7.7%. Adding in the 4% dividend yield, this takes yearly returns to just under 12% – not bad at all. There are many UK value stocks, like BT, Vodafone, and Legal & General that have performed well over the last 30 days.

Therefore, although US markets have dropped, the situation in the UK seems to be better. Interest rates are likely to keep rising in the near future, so things might get worse for US markets, but in my opinion, this doesn’t warrant the use of the phrase ‘stock market crash’ (even less so as far as the UK is concerned).

I think that US markets are just experiencing a reality check. Super-high valuations have been the norm for the last 18 months, and rising interest rates are starting to cool things off. As stocks return to their fundamental value, I will be keeping a keen eye out for some bargains to add to my portfolio.

The post Is the stock market crashing? appeared first on The Motley Fool UK.

More reading

• 3,703 Legal & General shares pay £822 yearly passive income
• 5 years ago, £10,000 bought 9,827 Rolls-Royce shares. But how many would it buy now?
• No savings at 30? How investing £5 a day in an ISA could target a stunning second income of £40,208 a year
• Here’s how much an investor needs in Lloyds shares to earn a £125 monthly income
• Down 45% in 5 years, this UK stock now offers a stunning 11% dividend yield!

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone. 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.

Golden opportunity?

Given the wild swings for stocks and lower cash value from high inflation, the casual observer might have expected gold to do well. On the contrary, this week saw gold trade at its worst levels since February. This was due to the strength of the US dollar, as it hit a 20-year high, rebuffing views that the greenback is a dying dinosaur. While both gold and cash offer more safety than equities, gold has underperformed the stock market over most time periods. As such, I feel the golden opportunity isn’t investing in gold, but rather in the stock market over the long term.

There’s been lots of noise but no real direction as to whether the falls are a great buying opportunity, or just the first step in a much more serious bear market. If inflation remains high, further rate rises look inevitable. This is bad news for property, equities, and bonds, especially if paired with an economic downturn. Despite that, it’s worth noting that although the stock market seeing plenty of red lately, history’s on its side. Since its inception, the US S&P 500 has rebounded from every single market crash, for instance.

Time in the market is better than timing the market

Many investors seek to time the market by finding a bottom before investing. Unfortunately, it’s very rare that this actually works. The best-known investor globally, Warren Buffett, once said: “I haven’t the faintest idea what the stock market is going to do when it opens on Monday.” More often than not, investors have to suffer a little bit of pain before seeing a return on investment. Be that as it may, being patient is easier said than done. It’s never easy investing your savings only to watch them lose half their value. Hence why it’s crucial to pick the right stocks.

Picking the right stocks

That brings me on to how to do that. Do your due diligence — that’s the most important thing before investing in the stock market. Like the oracle of Omaha, I follow a strict checklist before purchasing stocks. I look for:

• Solid fundamentals (Low debt and healthy cash levels).
• A company with pricing power or high margins.
• Great earnings potential.

These qualities sound simple, but they’re more difficult to find in many companies than not. Nonetheless, one such company that exhibits all these traits is Google owner, Alphabet. The mega-cap boasts an excellent balance sheet, healthy margins (30%), and great earnings potential through the development of its many offerings. Nevertheless, its share price is down 20% this year as the firm came in short of earnings expectations and future underperformance remains a risk. However, I’ll be capitalising on its lower price to add to my Alphabet position.

The post My 3 best tips on how to invest in today’s stock market appeared first on The Motley Fool UK.

More reading

• I’m getting ready for a dramatic stock market crash

John Choong owns shares of Alphabet (Class A Shares) at the time of writing. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Alphabet (A shares) and Alphabet (C shares). 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.

Thanks to my Foolish mentality — and the fact that my problems are tiny compared to those of people in Ukraine — I’ve generally succeeded in taking this not-insignificant wobble in my stride. 

Here’s what I’ve been doing

First, I haven’t sold a single thing. Yes, there’s certainly no guarantee that markets won’t dip lower in the months ahead. Then again, I have no way of knowing whether this will be the case in advance. Getting out now may help stop the bleeding but it will also leave a (costly) financial bloodstain. In other words, it merely turns what is only a potential loss into a real loss.

Second, I’ve taken a quick look at whether anything has truly changed with regard to stocks I own. Without exception, this is thankfully not the case.

Sure, there are some significant headwinds. For example, one of my favourite businesses — Greggs — has fallen heavily on news it might need to raise prices for the second time this year due to rising costs. That’s unfortunate, but I highly doubt the sausage roll seller now faces an exodus of customers compared to businesses devoted to selling big-ticket items. And will Greggs still face this challenge in a few years? I suspect not. 

This brings me to a third thing I’ve been doing, namely adding to my watchlist of stocks I’d be tempted to buy at current levels. Right now, Games Workshop, SDI and XP Power are all in my sights. Whether I end up pulling the trigger is dependent on having available funds to do so, of course. Regardless, I always keep this list running in good times and bad. This should mean that my rationale for investing is solid and I’m not making any impulsive purchases.

Walking away

My last action is both simple and highly effective. Not checking my portfolio at all. 

To be clear, this is not the same as sticking my head in the sand. I know full well that a good chunk of my paper profit has gone up in smoke in recent weeks. But if I know I can’t change the situation, the next best option is to learn to accept it and do something far more productive. This could include finding ways of raising extra cash which can then be deposited in my Stocks and Shares ISA.

That last point is particularly important at this time of the year. After all, the ISA window closes early next month. Whatever of my £20,000 allowance I don’t throw at this tax-efficient savings account will be lost forever. That really matters over the long term, given the wonder that is compound interest. 

Long-term focus

It goes without saying that there are far more important things going on in the world right now than volatile share prices. Even so, I remain convinced that ‘this too shall pass’ just as all stock market crises have.

For someone not planning on touching his Stocks and Shares ISA for a couple of decades, that simple mantra is good enough for me.

The post My Stocks and Shares ISA has tanked. So I’m doing this appeared first on The Motley Fool UK.

More reading

• 3,703 Legal & General shares pay £822 yearly passive income
• 5 years ago, £10,000 bought 9,827 Rolls-Royce shares. But how many would it buy now?
• No savings at 30? How investing £5 a day in an ISA could target a stunning second income of £40,208 a year
• Here’s how much an investor needs in Lloyds shares to earn a £125 monthly income
• Down 45% in 5 years, this UK stock now offers a stunning 11% dividend yield!

Paul Summers owns shares in Greggs. The Motley Fool UK has recommended Games Workshop and XP Power. 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.

British industry leader

Blue-chip stocks are generally the biggest and most consistent and reputable companies listed on an index. These companies usually have a huge market share and a strong history of investor returns. And in the past decade, Diageo (LSE:DGE) has embodied this better than most FTSE 100 companies.

The global alcohol giant owns huge names like Johnnie Walker and Guinness and has leveraged recent revenue to acquire huge local names across emerging alcohol markets. Sales have increased steadily year-on-year and the excess cash has been reused effectively. Diageo recently announced a £4.5bn share buyback to be completed by 2023.

Strong sales growth in China and India means the company now expects to add over 10mn loyal customers by 2030. Diageo also launched a US$75m carbon-neutral distillery project in China last year. I think this Asia push could allow the brand to sustain its current global dominance.

Diageo is currently trading at 3,432p, down 16% since the start of this year. Looking at the share price movement from the pandemic lows to the recent all-time high of 4,030p in December 2021, I think Diageo shows strong recovery potential.

Growing risk of regulation is the biggest concern for the alcohol sector right now. Health taxes could cripple the booming alcohol market which would affect its sales directly. Despite this concern, I think Diageo’s business plan and market share will help it retain its position as one of the most reliable FTSE 100 shares over the next decade as well. This is why I am planning on purchasing Diageo shares if it dips further.

Brand value

Consumer goods brand Unilever (LSE:ULVR) is the next blue-chip FTSE 100 share I’d buy right now. Much like Diageo, the UK giant owns a host of popular brands in its segment like Dove, Lipton, and Vaseline.

With growing inflationary pressures, I would like to add companies with pricing power, like Unilever, to my portfolio right now. If a company can pass on some of the excess costs to its consumer without losing a major chunk of sales, it almost ensures revenue growth even during turbulent periods. Unilever recently streamlined its operations and this move is expected to save about €600m over two years, which will fund its marketing and R&D wings. I think this will give it a long-term edge over smaller competitors who will struggle to offset revenue losses.

Going forward, the company expects 2022 sales growth to be between 4.5% and 6.5%. Given that this rate of growth is not earth-shattering, there is a risk of share price stagnation. Investors could opt to invest in more exciting sectors which would affect Unilever’s price action. The brand also faces stiff competition from the rise of generic alternatives and discount retailers. But being a well-established FTSE 100 consumer goods giant, I think Unilever is well placed to handle market volatility, which is why I think it is a prudent recovery play for my portfolio now.

The post 2 blue chip FTSE 100 shares to buy for the market recovery appeared first on The Motley Fool UK.

More reading

• Investors tempted by beaten-down Diageo shares should mark 6 May on their calendars now
• £5,000 invested in Diageo shares 110 days ago is now worth…
• I asked ChatGPT if I should buy Aviva, Diageo or BAE Systems stock and it said…
• Prediction: Diageo shares could soar in the next 5 years if this happens…
• These FTSE 100 stocks are tipped to rise 53% (or more) in the next year!

Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo and Unilever. 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.

The volatility in global stock markets over 2022 so far is enough to shake the conviction of even the most grounded of investors. Here are a few strategies I’ve been using to ride out the storm.

1. Don’t panic-sell

When the chips are down, it’s easy to see why moving into cash is so appealing. It draws a line under the situation and allows me to move on. But does it really?

Beyond holding an ’emergency fund’ to cover, say, a sudden unexpected bill or brief period of unemployment, cash is just about the worst asset I could have right now. Low interest rates and galloping inflation means its value is gradually (or not so gradually!) being eroded. So in addition to crystallising any losses, I’d essentially be jumping out of the frying pan into the fire.

Selling up also implies that I also know when will be the right time to buy stocks again. The sheer volatility we saw on markets last week, where share prices actually rose as the Russian invasion of Ukraine progressed, tells me I don’t.

As a committed Fool, it goes without saying that panic-selling everything I own right now is not something I’m contemplating. 

2. Buy quality

Warren Buffett tells us to “be greedy when others are fearful“. I’d say right now offers me a great opportunity to put this advice into practice.

Now, it doesn’t make sense to buy any old stock on the market and expect it to recover in style. I would, for example, avoid any company lacking financial stability (such as cinema chain Cineworld). I would also steer clear of any business that lacks an identifiable advantage over competitors (such as white goods seller AO World, in my opinion). Instead, I’d be out to snap up proven ‘winners’ in their respective sectors. From the FTSE 100, for example, I remain convinced that Halma is a great growth buy. 

Aside from looking for quality businesses, there are also ways of making the buying process easier from a psychological point of view. One is buying in tranches, otherwise known as pound-cost averaging. Such a strategy helps to avoid trying to time the market exactly (which I know I can’t do, at least consistently). It also ensures at least some of my money starts working for me. 

A third element of my buying strategy is to make sure that anything I snap up is held within a Stocks and Shares ISA. This means any profits I make (and dividends I receive) are free of tax. 

3. Switch off

Assuming I’ve not sold anything in haste and bought things I’ve had on my watchlist, there’s one final solution that’s unsurpassed in helping me deal with stock market volatility. Simply, just switch off. That’s right — close off my portfolio, turn off the laptop, stop watching the news and go and do something more productive.

I have the confidence to do this because evidence shows that equities outperform all other asset classes. This includes cash (naturally), bonds, real estate and gold. The only caveat here is that this requires being invested for the long term.

For someone content to grow his wealth slowly but surely, that suits me. As distressing as current events are, I also know that “this too shall pass“. 

The post 3 Foolish ways I’m dealing with stock market volatility appeared first on The Motley Fool UK.

More reading

• 3,703 Legal & General shares pay £822 yearly passive income
• 5 years ago, £10,000 bought 9,827 Rolls-Royce shares. But how many would it buy now?
• No savings at 30? How investing £5 a day in an ISA could target a stunning second income of £40,208 a year
• Here’s how much an investor needs in Lloyds shares to earn a £125 monthly income
• Down 45% in 5 years, this UK stock now offers a stunning 11% dividend yield!

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Halma. 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.

Having blown cold on the stock for so long, should I regard this fall as a golden opportunity to finally climb on board?

Profits double!

On a day when most investors are hiding behind their sofas, the numbers from the British Gas owner make for pleasant reading. One, in particular, stood out for me: adjusted operating profit rocketed 112% to £948m in 2021. No wonder the Centrica share price has been motoring for the last nine months or so. 

No doubt some investors have been tempted to get involved following actions taken by management to make Centrica a leaner beast after losing so many customers to rivals. Direct Energy was sold last year and the disposal of Spirit Norway has also been agreed. This has helped boost Centrica’s balance sheet. In fact, the company finished 2021 with net cash for the first time in many years (£0.7bn). That’s really made me sit up and take notice. 

“Broadly positive” outlook

Of course, there’s only so much weight I should give today’s results when it comes to making an investment decision. It’s Centrica’s outlook that’s arguably far more important.

Today, the £4.5bn cap business said that it was “broadly positive” on trading in 2022. That’s not exactly bullish but it’s probably realistic considering the “wider range of outcomes” noted by the company as a result of high commodity prices. The possibility of further regulatory changes is another potential headwind.  

Opportunity knocks?

Centrica shares currently trade at 11 times earnings. That’s a low valuation relative to its industry and the market as a whole. So, am I interested in buying now?

Well, there are a few things that keep me wary.

Perhaps most prominently, I need to remember that Centrica has absolutely no control over pricing. As an indication of this, the company stated that it was still too early to say what the impact of Russia’s invasion of Ukraine would be. I prefer to own stakes in companies with more say in their destiny. 

Another thing worth noting is the lack of dividends. That’s hardly surprising for a turnaround stock. However, I like the idea of being compensated for my patience if/when the Centrica share price goes into reverse as it has today.

On a positive note, total free cash flow jumped 71% to £1.17bn in 2021 so perhaps holders won’t have too much longer to wait? The company did also say today that there was now a “clear path to restart paying a dividend”. Personally, I’ll wait until I see it.

My verdict

As encouraging as today’s results are, I don’t think they’re enough to radically alter my feelings about this stock. If I did have the cash to spare right now, I’d be taking full advantage of the market crash and buying shares in higher-quality companies elsewhere in the UK market. 

Yes, this FTSE 250 member may have done well over the last year, but I’m under no illusion that a full recovery for the Centrica share price may be many years away, if it comes at all. As someone who is looking to compound his wealth, that doesn’t appeal. 

The post The Centrica share price falls as profits double. Time to buy? appeared first on The Motley Fool UK.

More reading

• 3,703 Legal & General shares pay £822 yearly passive income
• 5 years ago, £10,000 bought 9,827 Rolls-Royce shares. But how many would it buy now?
• No savings at 30? How investing £5 a day in an ISA could target a stunning second income of £40,208 a year
• Here’s how much an investor needs in Lloyds shares to earn a £125 monthly income
• Down 45% in 5 years, this UK stock now offers a stunning 11% dividend yield!

Paul Summers 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.