Shares in FTSE 250 oil and gas company Ithaca Energy (LSE:ITH) are down 30% in the last 12 months. I’m intrigued. I see potential here for one of the biggest oil and gas opportunities of the last two decades.

I’m going to investigate in detail and with a critical eye. So let’s get into it.

Laughing all the way to the Rosebank

First things first. Ithaca Energy went public in November 2022 to exploit its acquisition of a 20% stake in Rosebank. This is one of the UK’s largest untapped oil fields. It’s located in the North Sea, 80 miles off the coast of the Shetland Islands.

If the name rings a bell, there’s a good reason.

Rishi Sunak’s Tory government gave Rosebank the long-awaited green light in September 2023. This approval came with some pretty massive public and media attention.

Rosebank was discovered in 2004. It’s only now, almost 20 years later, that work can begin.

That’s the type of risk and reward inherent in oil and gas discoveries.

What comes next

Ithaca Energy has a 20% non-operated stake in the Rosebank oil field. Non-operated means the company won’t do any of the drilling here.

The firm doing the work will be Equinor, which owns the other 80% stake. That’s Norway’s state-owned multinational oil and gas company. It’s worth around £79bn and has been operating since 1972.

With that kind of hard-won track record, it’s reasonable to assume it will be a useful partner.

Phase 1 drilling is slated to begin in 2026-27. So it will be at least five years before Ithaca starts to see the value of Rosebank come good.

It’s tough to say how much Rosebank may be worth to Ithaca. But a 20% stake is undeniably more valuable now the field can be drilled.

And the average dividend yield for FTSE 250 companies is around 4.7%. So a company paying three times that level may seem like a no-brainer.

Risk and reward

It’s always worth paying extra attention to the risks of investing in smaller UK companies.

That’s especially true when considering home-grown commodities or oil and gas stocks.

British investors have certainly been burned in the past. Some of us may recall the whole Sirius Minerals debacle. That was a UK-based fertiliser company that promised the earth but ended up crashing out of the FTSE 250, taking investor cash with it.

The comparison isn’t entirely fair though. Ithaca isn’t solely reliant on a project that’s not yet built. But my capital isn’t unlimited, so I must cast a critical eye over every opportunity.

Buy or pass?

Ithaca pulled in sales from its operated oil fields of £2.1bn last year. And £143m in cash on the balance sheet calms my nerves somewhat. Also, the company has halved its debt pile in the last two years. That suggests prudent management.

The company’s free cash flow is 10 times what it was in 2018. This indicates there’s material growth here.

And while revenue is forecast to dip slightly, analysts expect profits to rise from £372m this year to £396m in 2024.

I’m considering taking a position here, with the share price stabilised at around 155p.

The post This FTSE 250 stock pays 17% dividends! Is Ithaca Energy my next big buy? appeared first on The Motley Fool UK.

More reading

• Scottish Mortgage has made a fortune on SpaceX and Tesla! Here are 5 UK stocks it owns
• I think UK investors are missing out on this overlooked Dow Jones stock
• 2 FTSE 100 shares that could outperform this year regardless of geopolitics
• With share prices rising, is now the time to hold off buying stocks?
• 6% dividend yields and a P/E below 6! Here’s a FTSE 250 bargain share to consider

Tom Rodgers 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.

US stocks go electric

Thanks to its forthcoming inclusion in the S&P 500 index, it’s no revelation that electric car maker Tesla makes the list.

Having now posted more than the four profitable quarters required to make it eligible, Elon Musk’s California-based giant gets its promotion on December 1. Institutions operating index-tracking funds will be obliged to buy the stock. And canny investors know that. This should push the share price higher, at least for a while.  

But UK investors’ desire for electric vehicle stocks goes beyond Tesla. Manufacturers Nio and Workhorse make the list of the most popular buys, as do US-listed Chinese equivalents Xpeng (or Ziaopeng Motors) and Li Auto. Interestingly, Canadian car designer ElectraMeccanica was the most popular stock traded by UK investors over the past week. 

Alternative power

Another in-favour share has been Plug Power. The $11bn cap makes hydrogen fuel cell systems that replace conventional batteries in vehicles such as trucks and equipment used in warehouses. Its shares have climbed an incredible 700% in 2020 alone.

A second popular alternative power buy in the last seven days has been FuelCell Energy. It designs, manufactures, operates and services fuel cell power plants.

With the push to green energy sources likely to play a significant role in Joe Biden’s presidency, it’s understandable that UK investors should gravitate to companies like these.

Also in the mix

The remaining two stocks in the Top 10 list offer a bit more variety.

Small-cap biotechnology firm Vaxart is currently developing a coronavirus vaccine that can be administered orally. Assuming it’s clinically effective, a big positive is that it won’t require cold storage, making the vaccine relatively easy to distribute. Vaxart may be running behind other candidates on results, but that doesn’t seem to be deterring UK investors from buying. 

The final share that made the list in the last seven days was GoPro — the leading manufacturer of action cameras and video-editing software. 

Should I buy?

Here at the Fool UK, we’re not the sort to buy shares in companies just because they’re popular. Sentiment can turn quickly. So any strategy based purely on momentum is inherently risky. Moreover, the valuations attached to some US stocks now look crazy. Tesla is a prime example.

This is not to say we think owning shares in businesses listed overseas is a bad idea. Quite the opposite, in fact. Diversifying a portfolio to include these stocks can help protect UK-based investors from events closer to home.

It can also lead to better returns. While US markets have soared since markets crashed in March, the FTSE All-Share is still down around 15% in 2020. Buying London-listed firms feels safe, but this ‘home bias’ can prove a drag on profits.

Lastly, it’s a fact that most of the major players in ‘megatrends’ such as the move towards automation, healthcare innovation and, yes, electric cars, are listed overseas. As a long-term investor, I think getting some exposure is vital.

The post The top 10 most traded US stocks on Stake by UK investors in the past week appeared first on The Motley Fool UK.

More reading

• Scottish Mortgage has made a fortune on SpaceX and Tesla! Here are 5 UK stocks it owns
• I think UK investors are missing out on this overlooked Dow Jones stock
• 2 FTSE 100 shares that could outperform this year regardless of geopolitics
• With share prices rising, is now the time to hold off buying stocks?
• 6% dividend yields and a P/E below 6! Here’s a FTSE 250 bargain share to consider

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

Personally, I’d be more inclined to gravitate towards other UK stocks at the current time, particularly those lower down the market spectrum. Here’s why.

The trouble with Rolls-Royce shares

The problem with buying shares in a battered company like Rolls-Royce is two-fold.

First, you have to remember who your competition is. Here at the Fool UK, we encourage people to see investment as a long-term endeavour. Unfortunately, a lot of people aren’t capable of being patient. Look at the recent volatility in cinema chain Cineworld as an example of this. Thanks to day traders, I think Rolls-Royce shares could lurch up and down for a while.

Second, it needs to be remembered that people are buying shares in a business that was hardly firing on all cylinders before coronavirus reared its ugly head. Even with Covid-19 gone, there’s no guarantee Rolls-Royce will then thrive.

This isn’t to say investing now won’t work out well. News of a vaccine could turbocharge all UK share prices. Then again, no one should approach the £5bn-cap without appreciating the myriad of challenges it faces.

Taking this into account, I’m finding it difficult to muster any enthusiasm to buy Rolls-Royce shares right now. For me, there are better opportunities available elsewhere in the market. This is especially true in the small-cap space.

Top manager pulls IPO

Yesterday, it was announced the Buffettology Small Companies Investment Trust wouldn’t be listing on the market, having been unable to raise the £100m fund manager Keith Ashworth-Lord was looking for.

This news is significant because Ashworth-Lord is arguably one of the UK’s best stockpickers. Had one invested in his CFP SDL UK Buffettology Fund when it launched in 2011, that money would have grown by a little over 230%, according to its latest factsheet. The sector average? Just 59%! He certainly didn’t achieve this owning Rolls-Royce shares.

The shelving of the IPO suggests the UK market is utterly unloved at the moment. This is, to an extent, understandable. With Covid-19 infection rates rising, talk of another national lockdown in England won’t go away. Should further travel restrictions be put in place, it’ll be time for investors to hide behind their sofas. There’s also Brexit to ponder.

Nevertheless, this is exactly why I think now is a once-in-a-lifetime chance to buy UK small-cap stocks!

Go small

Unlike Rolls-Royce, many UK-listed minnows possess robust balance sheets with minimal/no debt. Many also operate in far more defensive sectors than the FTSE 100 engineering firm. Fewer working parts also allow small-caps to be far more nimble in grabbing market opportunities. Most importantly, small-cap shares have been shown to massively outperform the giants over the long term.

As investors, we’re taught to buy ‘when there’s blood on the streets‘. While this can be a path to riches, I’d argue it’s still very dependent on which ‘street’ you select.

For me, now’s the time to buy small-cap UK stocks with quality characteristics and solid outlooks. I’ll leave Rolls-Royce shares to the traders. 

The post Forget Rolls-Royce. I think this is a once-in-a-lifetime chance to get rich from UK small-cap shares! appeared first on The Motley Fool UK.

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• Will Rolls-Royce shares soar to £17.40 or sink to 900p?
• Now below £12, are Rolls-Royce shares an unmissable bargain?

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.

Then again, there are some sectors that simply scream ‘avoid‘ to me right now. Here are three that are unlikely to make you rich any time soon. 

No sweat

One set of businesses that I think will struggle more than most to recover will be gyms and fitness studios.

If reports from the US are anything to go by, many people do not intend to renew their memberships post-lockdown. It would seem a lot have simply become accustomed to working out in the park or at home. Either that or they’ve recognised the futility of shelling out money on a regular basis for something they don’t use all that often. With job insecurity rising sharply as firms adapt to the ‘new normal’, gym memberships are also a luxury most of us would be willing to forgo.

Of course, there will still be people who head back to their local gym, particularly those who miss the social and motivational aspects of a visit. Others will likely want to return in the winter months when the cold weather sets in. Then again, the possibility of a second wave coinciding with seasonal flu will surely make even the most dedicated gym bunny think twice.

It may benefit from reduced competition if other operators go bust but I’d continue to give Gym Group — one option on the UK market — a wide berth for now.  

High street fallout

Many retailers were already finding things tough before the coronavirus arrived on these shores. The lockdown and stuttering recovery in sales seen since could prove the final nails in many coffins. 

Certain UK stocks should be absolutely fine, of course. Supermarket titans Tesco, Sainsbury’s and Morrisons for example. A business specialising in low-ticket staples, like B&M European Value, should also thrive in troubled times. 

If you’re going to buy a retailer that sells more discretionary goods, however, I’d avoid anything that doesn’t already have a strong online presence and bulletproof finances. And even if they do have these, it’s important to ask whether they can be more resilient than their peers given the hyper-competitive markets in which they operate.

As such, I’d avoid stocks like Dixons Carphone and yes, even stalwart Marks and Spencer.

Bumpy ride

I don’t doubt that some airlines will adapt and recover from the coronavirus. Picking a winner at this stage, however, feels like a gamble. After all, the coronavirus story changes every day. This leads to huge volatility in stocks such as easyJet, Ryanair and IAG as investors struggle to accurately value them. 

There’s also the opportunity cost to consider. Why put your money to work in an industry that might not recover for 2-3 years? And can you stand the bumpy ride in the meantime?

Investing is all about generating the best return from the amount of risk you’re prepared to take. The right airline stock could make you wealthy in time but I think this part of the market is only for the brave or recklessly bold right now. 

The post Looking for the best UK stocks to buy now? I’d avoid these like the plague appeared first on The Motley Fool UK.

More reading

• Scottish Mortgage has made a fortune on SpaceX and Tesla! Here are 5 UK stocks it owns
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• 2 FTSE 100 shares that could outperform this year regardless of geopolitics
• With share prices rising, is now the time to hold off buying stocks?
• 6% dividend yields and a P/E below 6! Here’s a FTSE 250 bargain share to consider

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended B&M European Value, Tesco, and The Gym 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.

With the shares hitting a fresh record high this morning following the release of its latest set of full-year results, is now a good time for new investors to get involved? Yes and no.  

Record results

When the CEO of a company includes the words, “Wow, what a year!” in his report, you get an inkling of just how positive trading has been.

Despite the coronavirus forcing it to close for business on 24 March, Games still managed to grow sales by 5.1% to 269.7m in the year to the end of May. At £89.4m, pre-tax profit was 10% higher. This was, in short, the best year of trading in the company’s history.  

This is not to say that the Games hasn’t been forced to adapt. In response to the pandemic, it took advantage of the government’s furlough scheme, which the Nottingham-based business is now in the process of repaying. To further mitigate the impact of the virus, Games has also paused shop openings “for the foreseeable future” to concentrate on supporting existing stores back to health.

Having said this, the company did say that it would continue to invest in its IT systems, warehouses and online offering. Sales from the latter “continue to go from strength to strength“, according to management. 

Quality UK stock 

In a market stuffed with companies that overpromise and underperform, Games Workshop is the stuff investors dream of. It boasts stonkingly high margins and a very strong financial position. It’s a clear leader in a niche market and has an exceptionally loyal following.

Importantly, the company also generates superb returns on capital. In other words, it makes great money on what it invests in itself. As Warren Buffett, Terry Smith and Nick Train have all said, this is one of the best ways of identifying businesses that could potentially change your life. 

There’s just one problem: the price you must pay to acquire firms with these characteristics is usually high. Games is no exception.

Punchy valuation

A forecast price-to-earnings (P/E) ratio of 47 for the new (current) year is undeniably punchy. This is also before taking into account the near-10% rise in the share price in early trading this morning. 

To be willing to pay such a price you need to be very confident that the company will continue to grow at a very fast rate. Although I’m bullish on the potential for it to exploit its intellectual property in a number of ways (video games, films) and grow the Warhammer brand in markets such as China and North America, it does feel like quite a bit of this is already priced in.  

Factor in concerns surrounding the possibility of a second coronavirus wave and the ongoing saga that is Brexit and I’d be wary of going ‘all-in’ on this top UK stock right now.

Should markets crash again like they did in March, however, I’ll be backing the truck up. 

The post Wow! £5,000 invested in this top UK stock in 2016 would be worth this much today appeared first on The Motley Fool UK.

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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.

Stock market goals

Forget the quick wins — good investing rests on solid foundations and knowing what you want to achieve before throwing every penny you have at stocks. Simply ‘wanting to be rich’ isn’t enough because it won’t help you refine your strategy (there are many ways of making money in the markets).

So, what are your financial goals? Is it saving for retirement in the future or generating income now? Are you saving for your child’s university tuition fees or a deposit on a house?

Just as important is knowing how much energy you’re willing to commit to investing. There’s little point buying single company stocks if you’re not prepared to follow their progress (or lack of). You’ll probably be better off buying funds managed by professionals or, alternatively, low-cost index trackers and doing something else with your time. 

Speaking of which…

Take advantage of time

One powerful advantage retail investors have over the professionals is that the latter’s scorecards are continually scrutinised. If they don’t perform, their careers are cut short. This is unfortunate since investing success can/should only really be judged over years and ideally decades. The short-term moves of stock markets tend to be pretty meaningless.

As retail investors, we don’t have this problem. They’ll be no one to hand us a P45 if we underperform for a while.

More importantly, we can use this to our advantage through buying shares in undervalued companies experiencing temporary problems. Assuming all goes well, we’ll reap the rewards later down the line.

Diversify (but not too much)

Throwing all your cash at only a few stocks is a recipe for ruin, particularly if they’re in volatile sectors such as oil and gas or biotech. 

Having said this, being overly diversified can hold you back too. The more shares you own, the less you deviate from the market as a whole.

To beat the stock market, you need to do something different to the market. It’s no surprise, therefore, that some of the UK’s most successful money managers are those who only invest in their best ideas. Think 20-30 stocks…think Terry Smith or Nick Train. 

There’s no magic bullet when it comes to defining how many shares to hold but here’s a simple acid test: if you’re losing sleep over your portfolio, you’re likely taking on too much risk.

Stick to your script

It can be easy to deviate from your own script in pursuit of riches, especially when others appear to be doubling their wealth overnight. How many usually-calm private investors were rushing to invest in Synairgen last week? Quite a few, I imagine.

Even the professionals sometimes struggle to do it and they’re managing other peoples’ money (see Neil Woodford’s fall from grace last year).

Don’t follow the herd. Avoid unnecessary commission costs that erode returns. Learn to sit on your hands. Learn to buy and hold. 

The post Learning how to invest in the stock market? Read this now! appeared first on The Motley Fool UK.

More reading

• Scottish Mortgage has made a fortune on SpaceX and Tesla! Here are 5 UK stocks it owns
• I think UK investors are missing out on this overlooked Dow Jones stock
• 2 FTSE 100 shares that could outperform this year regardless of geopolitics
• With share prices rising, is now the time to hold off buying stocks?
• 6% dividend yields and a P/E below 6! Here’s a FTSE 250 bargain share to consider

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.

What’s behind this explosive rise and should UK investors consider taking a stake now?

Why is Tesla racing away?

There are a few reasons for its momentum. First, the buzz around electric vehicles looks to have moved into a higher gear. Increased concern for the environment and the firm’s technical supremacy over other manufacturers (it’s expected to unveil a million-mile, low-cost battery in September) has put Tesla in a thematic sweet spot. Factor-in investors’ belief in the visionary brilliance of CEO Elon Musk and Tesla’s rise, while extreme, makes some sense. 

Another reason for this rise rests on its status as the ultimate ‘Marmite stock’. But those who loathe it question how a company that still only sells thousands of cars a year can be worth more than those that sell millions combined. This has previously led to massive ‘shorting’ of the stock — traders betting Tesla’s share price will fall.

One explanation for why this hasn’t happened is old-fashioned herd speculation. With no sports to bet on during lockdown and buoyed by Federal Reserve’s relief packages, bored novice investors have flooded markets in recent months. Many, it would seem, have put their money into Tesla. This has, in turn, forced said shorters to desperately close their positions (known as a ‘short squeeze’), further propelling the shares upwards.

Will it keep rising?

It’s hard to say if this can last. History is littered with companies continuing to rise in value despite becoming utterly detached from their fundamentals (which Tesla arguably is). Greed is a powerful motivator. So too is a great story.

What we do know is that Tesla ‘shorts’ are now at their lowest level on record. With fewer positions left to close, this could mean the big gains seen recently may be at an end. Adding to the bear case, market jitters over a second coronavirus wave could cause a heavy bout of profit-taking.

Last, let’s not forget that Musk’s unpredictability can be a liability for Tesla. In May, he suggested that the value of stock in his own company was “too high“, causing the shares to fall 10%.

Taking all this into account, I’d suggest anyone thinking of buying Tesla now should tread carefully if they don’t intend on holding for years. The long-term potential might be even better than anticipated, but the probability of near-term volatility up to the next earnings update on July 22 (and perhaps medium-term choppiness too) is very real.

Any alternatives?

One option for less risk-tolerant readers would be to look for a fund with shares in the company. UK-based, tech-focused, FTSE 100 member Scottish Mortgage Investment Trust is an example. Tesla is its biggest holding. Unsurprisingly, performance this year has been excellent. The fees charged are also reasonable for an actively-managed fund.

A passive alternative is the iShares Electric Vehicles and Driving Technology UCITS ETF. It has 3.31% of its assets in Tesla but is diversified across 84 other stocks. This should give holders sufficient protection while allowing them access to one of the decade’s biggest investment themes.

Buying either also avoids the paperwork required by brokers when you buy US stocks.

The post Should UK investors buy Tesla stock now? appeared first on The Motley Fool UK.

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Paul Summers owns shares in Scottish Mortgage Investment Trust. The Motley Fool UK owns shares of and has recommended Tesla. 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.

A majority win for the Conservatives will likely result in shares rallying since this provides investors with a bit more certainty that Brexit will happen, perhaps as soon as the end of January (although further negotiations will be required after we’ve left).

A win for Johnson wouldn’t necessarily be good news for all stocks though. Those who generate the majority of their earnings overseas  — a big chunk of the FTSE 100 — might not be in demand as much of those with a domestic focus as a result of a rebound in sterling.

A Labour win, however unlikely some believe this to be, could mean chaos in the markets for several reasons.

Firstly, Corbyn has said he’ll attempt to agree a new deal with the EU, which will then be put to the people in the form of a second referendum. Whether you agree with this or not, it does mean more delay which, in turn, could put investors off investing in the UK. 

Secondly, a Labour government could oversee the re-nationalisation of several industries, including energy, water and rail. Even a part-nationalisation of BT has now been proposed. As such, anyone invested in companies operating in these areas could see the value of their shares hammered. 

Even those not holding these stocks could be hit with a new financial transaction tax and a rule stating that employees of firms above a certain size should be given a proportion of their company’s shares.

Of course, it may be that there’s is no clear winner. Such a scenario would be equally concerning for the markets since, again, it simply prolongs uncertainty. Sterling would likely fall, as would the share prices of UK-focused companies.

How to prepare

Clearly, no one knows for sure what will happen. We can, however, prepare. I would use the time between now and 12 December to review how your money is allocated.

Those nearing retirement and fully invested in equities, for example, may want to ask whether they could stomach a (temporary) hit to their wealth or whether they might need exposure to other assets such as bonds, property and gold. If it’s the latter, then a bit of rebalancing will be required. It won’t allow you to escape a market shock entirely, but it should allow you to sleep at night. 

With regard to specific companies, I’d continue to avoid (or ensure I wasn’t too exposed to) anything that looks vulnerable to re-nationalisation. Although these stocks will likely soar if Corbyn were beaten, that’s not reason enough to buy them now. Foolish investors should be primarily focused on holding a diversified bunch of great companies for the long term, not making a quick buck. Returns should certainly not be reliant on the outcome of political events. 

Lastly, I’d also make sure I’ve got some cash on hand if markets fall. Times of panic are, after all, the best time to go shopping for stock, particularly related to quality businesses that have been trading on hitherto excessive valuations.

The post The Christmas election outcome could batter or boost your wealth. Here’s what I’d do now appeared first on The Motley Fool UK.

More reading

• Scottish Mortgage has made a fortune on SpaceX and Tesla! Here are 5 UK stocks it owns
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• 2 FTSE 100 shares that could outperform this year regardless of geopolitics
• With share prices rising, is now the time to hold off buying stocks?
• 6% dividend yields and a P/E below 6! Here’s a FTSE 250 bargain share to consider

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.

Since it can take a while before the full impact of economic uncertainty filters down into the stock market, I’m beginning to suspect 2020 could turn out to be another tricky one for investors. Ultimately, we can’t predict but we can prepare. Here, then, are four suggestions what you can do. 

1. Keep some cash handy

To survive a downturn relatively unscathed, it makes sense to think not only about tackling any lingering, high-interest debt but also about what costs you have coming up in the near-term.

Do you have a would-be house deposit currently tied up in investments and intend to buy a property in the next year? If so, it may be prudent to move this money into cash to ensure it doesn’t lose value when you most need it. Do you have sufficient savings to cushion the blow of a period of temporary (but nevertheless unexpected) unemployment? If not, start building an emergency fund for if/when the bad times hit.  

2. Get diversified

If you haven’t checked how diversified your portfolio is, do so soon. It’s remarkably easy to forget the importance of spreading your wealth around different assets, particularly following the sustained period of share price appreciation we’ve experienced since 2009. 

Naturally, what you decide to do with your own investment portfolio will depend on your age, financial goals, and risk tolerance. As a rough rule of thumb, however, those nearing retirement should consider dialing down (but most certainly not eliminating!) their exposure to equities. Younger investors arguably have less to worry about, but it’s still worth asking whether companies held are sufficiently resilient, particularly if they already have shaky balance sheets, or operate in cyclical sectors.

3. Understand market cycles

Bear markets are part and parcel of investing. You can’t avoid them and you’ll never know exactly how you’ll respond until you’ve experienced one. As the great sage Mike Tyson once said: “Everybody has a plan until they get punched in the mouth.“

Notwithstanding this, you can, at least, educate yourself about these things before they happen, if only to gain an appreciation of just how common they are and how long they tend to last for.

According to a study by Yardeni Research, the 36 corrections and bear markets in the US since 1950 have lasted for an average of just 196 days — worth remembering before you aim to push that ‘sell’ button. For more on this, I heartily recommend the writings of investing legend Howard Marks.

4. Buy the dips

As we never tire of saying, private investors should regard market downturns as an opportunity to acquire great businesses at far more reasonable prices. They are, in short, a chance to accumulate. 

This might sound easy, but it’s not. If you’re concerned about the market falling further after purchasing a stock or fund, you may wish to drip feed your money rather than all at once. No one manages to buy at the bottom consistently but, assuming the investment case is solid, averaging-in to a position makes more sense than waiting for a price that may never come.

The post Fear a stock market plunge in 2020? Here are 4 brilliant ways to prepare appeared first on The Motley Fool UK.

More reading

• Scottish Mortgage has made a fortune on SpaceX and Tesla! Here are 5 UK stocks it owns
• I think UK investors are missing out on this overlooked Dow Jones stock
• 2 FTSE 100 shares that could outperform this year regardless of geopolitics
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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.

Regardless of whether you agree with his strategy or not, it’s clear whatever shenanigans we witness in the political world over the next month is going to have some kind of impact (good or bad) on your portfolio. With this in mind, here’s how I think investors should prepare.

1. Ditch the crystal ball

It is, of course, hugely tempting to try and predict what’s going to happen and adjust your portfolio accordingly. However, if the last three years have taught us anything, it’s that no one knows exactly how this period of political turmoil will end. Our current prime minister might even be gone before 31 October.

This being the case, it’s therefore important to hold investments you’d be happy to stick with for the long term and match your risk tolerance, regardless of any short-term volatility. Leave the high-stakes, might-just-make-a-profit-if-I-time-this-right behaviour to the traders. 

It’s also worth remembering a resolution to Brexit will simply leave a space for some other event or issue to take its place. There will always be something else for markets to worry about. 

2. If in doubt… drip

Having accepted no one knows what’s coming next, it can still be tempting — albeit counterproductive from an investment perspective — to wait until we know for sure. 

As legendary fund manager Peter Lynch once remarked: “Far more money has been lost by investors in preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” The same will surely apply to Brexit.

All stock market journeys are uncertain and it’s for this reason shares give far better returns than any other asset class over time. We’re rewarded for taking more risk than if we’d simply held our savings in cash (not recommended, thanks to the eroding power of inflation).  

This is why drip-feeding money into your existing holdings — or ‘pound cost averaging’ in market lingo — will help avoid investment paralysis. It may feel counter-intuitive, but the message here is simply… keep calm and carry on.

3. Buy the world

There’s a tendency for investors to stick with what they know. That’s understandable considering we may use a company’s products or services on a daily basis, or know more about an economy if we actually contribute to it. Failing to ensure your holdings are geographically diversified, however, can be problematic if the companies or country you’re invested in enter a prolonged sticky patch.

It’s for this reason I’d recommend having exposure to markets other than the UK. This isn’t about attempting to jump in and out of investments to reap maximum profit. It’s about allocating your capital prudently so your portfolio remains stable and you can sleep at night.

Aside from moving some of your cash into economies that couldn’t care less about Brexit, it’s also worth contemplating whether you’re sufficiently invested in assets that, while unlikely to outperform, tend to be less correlated with shares (e.g. bonds, gold).

The post Your 3-step Brexit survival guide for October appeared first on The Motley Fool UK.

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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.