The price of Bitcoin when measured against other currencies was volatile in 2021. And 2022 is shaping up to be the same for the cryptocurrency. Yet some investors see Bitcoin as a safe-haven play in times of economic uncertainty. For the record, I’m not one of them. Instead, I’m focusing on stocks to buy now.
Bitcoin could do well in the coming years, but I reckon there’s a big opportunity developing in the stock market right now. And my strategy involves a two-pronged approach to the markets. Geopolitical events are causing many stocks to fall in price. And that situation brings with it both opportunities and setbacks.
Holding my nerve
On the one hand, shares I already own have been moving lower. So the first thing to consider is what to do about them. And my tactic involves re-appraising the underlying businesses and their long-term growth opportunities.
In most cases, my decision will be to simply hold on tight and ride out the current bout of market uncertainty. And that’s because many will have operations that are unaffected by the recent troubles in Eastern Europe. And others will have the potential to recover from any setback.
It may feel uncomfortable to watch the value of a portfolio decline. But I must accept that reversals, setbacks, bear markets and corrections are all part of the deal when investing for the long term. As long as I’ve chosen shares backed by strong and growing businesses, shorter-term challenges should not deter me from long-term investment objectives.
However, on the other hand, shorter-term market movement can throw up opportunities. And that happened in 2020 when coronavirus first hit the markets. Stock prices plunged. And in many cases, share prices moved so low they understated the true value of their underlying businesses.
Hunting for keen valuations
Indeed, shorter-term market movements can end up exaggerating the true extent of changes in business fundamentals. And that can happen on the upside and on the downside.
But when stock prices overshoot to the downside and valuations become depressed, that’s the time to pounce on the stocks of strong businesses. The technique has been used by billionaire investor Warren Buffett to good effect over several decades, for example.
And buying stocks when they’re undervaluing businesses can lead to strong investment returns in the future. Shareholders stand to gain from a valuation normalising back upwards and from the ongoing operational progress of the business.
Sometimes, gains can be rapid, as we saw following the spring crash of 2020. But that doesn’t always happen. And sometimes businesses don’t recover from setbacks. All shares carry risks and positive investment returns are not guaranteed for shareholders in any company.
But despite the risks involved in share ownership, the stock market has a good long-term record. And I’m keen to pick up stock bargains now. For example, I’ve got my eye on fast-moving consumer goods company Unilever. And I’m watching premium alcoholic drinks supplier Diageo and healthcare giant GlaxoSmithKline.
However, these stocks are not certain to deliver positive returns for me in the coming years. Nevertheless, they’re on my watchlist. And I’ll likely pounce and buy some of their shares during the current period of market weakness.Â