Many UK stock prices have fallen today, but not all. And when geopolitical events affect the markets, it always causes me to engage in a bit of contemplation.
I might even revisit my portfolio and examine the case for continuing to hold my investments, one by one. But that would be an examination of the business and its prospects rather than an assessment of the share price.
The important factor to establish is whether world events have changed the case for investing in a company in the first place. And I’m not seeing that situation with any of my holdings right now.
Warren Buffett presumably carried out a similar assessment of his portfolio when coronavirus first hit the markets a couple of years ago. And he decided to act by selling his airline shares. He said at the time it was because he thought the virus had changed the prospects for the industry. And he no longer had any idea what the sector would look like in the future.
Following the fundamentals of businesses
But I have no such reservations about my UK stocks today. My expectation is the sharp downward shocks my stocks are experiencing today will reverse over time. And that will likely occur because the underlying fundamentals of the businesses will shine through.
And I think such an approach is one of the ‘secret’ weapons that a long-term investment strategy arms us with. It gives us the ability to step back and observe market volatility from a safe distance. And sometimes that means switching of the screens and doing the gardening while the market coughs up its metaphorical hairball like a long-haired cat!
However, it’s worth me taking a thoughtful approach to stocks during volatile times. And that’s because stock volatility can throw off some decent opportunities. Buffett, for example, is known for this piece of advice: “Be fearful when others are greedy. Be greedy when others are fearful.”
He’s talking just about buying, selling and holding stocks, of course. But the thrust of that advice is to aim to buy stocks when valuations are lower and refrain from buying them when valuations are higher.
The market often overshoots
We can see the wisdom of such advice by looking at the market’s behaviour over the past few months. Indeed, many stock prices of great businesses are much lower than they were. And one of the main reasons, I suspect, is because valuations had risen too far.
But in time-honoured fashion, the stock market will likely behave in its usual cyclical pattern when it comes to valuations. And that means overshooting on the high side before then overshooting on the downside and repeating over and over.
So, today’s geopolitical environment could be creating a final push to the downside in the current market swing. And that may mean an opportunity for long-term investors like me to buy the stocks of strong and growing businesses at lower valuations. So I’m shopping for UK stocks right now.