The risk of a recession is all over the headlines after the UK economy shrank in March. It only fell 0.1%, but that doesn’t show the effect of rising energy prices yet. So how would I invest in UK shares if we’re facing a recession?
It’s easy to suggest investing safely and minimising risk all the time, and that’s generally what I try to do. But there are some specific things that I think could improve my outlook.
Avoid high valuations
Apple is no longer the world’s most valued stock, after a tech sell-off dropped it into second place behind Saudi Aramco.
Those high-flying tech stocks on big valuations don’t look so safe now, against the latest economic outlook. Well, not to those worried about short-term share price movements over the rest of 2022, they don’t.
Would I sell off UK tech stocks if I owned any? if I did own any premium technology shares, they’d be ones I’d want to keep for a decade or more, and through any recession.
But I don’t buy stocks on very high P/E valuations anyway. So sticking to conservative valuations is my approach to beating recessions. If that keeps me away from tech shares like these, that’s just a positive.
Stick to UK shares
I also stick mostly to UK shares anyway. I generally understand them better, and I keep away from companies that I really don’t know well enough.
But it strikes me that much of the global economic damage at the moment is happening to international infrastructure. That’s logistics, supply chains, et al.
It’s partly down to the pandemic we’re just emerging from. But there’s a lot of other damage too, associated with the Ukraine war and its knock-on effects.
It makes me increasingly think that sticking to UK-based stocks with less reliance on external infrastructure might be a good move in 2022.
Buy more shares
The next step in my recession strategy is to do the opposite of what many investors do. When they’re selling shares and causing prices to fall, I’ll be buying.
If I have any spare cash above what I’d have earmarked for investing anyway, it will go on shares. But even with no extra funds to invest, I’d buy more shares for the same money simply because they’re cheaper.
And the more recessions we have throughout my investing career, the more shares I’ll end up with.
I really don’t see any sense in selling my shares just because their prices have fallen.
Focus on the long term
I know I spoke of three ways I’ll invest through a recession. But this one isn’t really part of a buying strategy, it’s more a philosophy that keeps me from worrying about stock market weakness.
I invest for the long term. I’m really not interested in where shares prices will go this year (other than to help me buy at lower prices). No, I only really care what my shares will be worth in a decade, or more.
Until I want to sell, why does it matter?