The media is full of negative economic news again. And many UK shares have been moving lower.
For example, this morning I noticed these headlines among others:
Shock contraction of 0.3% for UK economy in April
Stock markets slide over global economy concerns
European stocks open with further losses after US inflation spike
I’m shopping for businesses, not tickers
As often happens, the market has a case of the jitters. But it’s worth me remembering the businesses behind stock tickers are far less reactive to economic news. And today’s headlines can easily reverse in as little as 24 hours. It’s easy for me to imagine headlines later in the week, such as:
Stock markets bounce higher
Value-seeking investors shop for bargains
Markets shrug off short-term economic data
And as a lifetime investor, my aim is to buy part-ownership of businesses to hold for the medium-to-long term. So it’s folly for me to pay too much attention to economic headlines and share price movements. Except, of course, that panic days caused by shorter-term stock traders can provide opportunities. And it’s sometimes possible to buy shares when they are assigning a better valuation to underlying businesses.
When it comes to buying stocks, billionaire investor Warren Buffett tends to fish where others aren’t. And I’m keen to do the same. So when many others are selling stocks — perhaps because of panicky headlines — it could be a good time to think about buying.
However, even Buffett’s style doesn’t guarantee a profitable long-term outcome. All stocks carry risks as well as positive potential. Businesses are complicated beasts and could face operational challenges at any time. However, Buffett has urged us not to become panic-stricken even if we see a stock we’re holding decline by as much as 50%. And in the past, he’s viewed such movements as opportunities to buy more. But that’s only if he has confidence in his investment thesis and the quality of the underlying enterprise.
Diversifying between strong businesses
I’d aim to spread the risks of stock market investing by diversifying between several well-researched businesses. Like Buffett, I reckon it’s important to focus on the strength of a company’s finances. And to target strong business economics with the potential for operational growth. But the final piece of the jigsaw puzzle is valuation. It’s important not to pay too much for my small slice of each business. And that’s why the current market dip could throw up some decent opportunities.
For example, I like the look of learning technology and educational materials provider Pearson. The company has a share buyback programme in full swing. And in April it posted 7% growth in first-quarter underlying sales. The directors said they are, “encouraged by the momentum we are seeing across the business”.
Plumbing and heating supplies distributor Ferguson has also caught my gaze. The company is another one busy buying back some of its own shares. In March, the second-quarter trading figures were robust. And the third-quarter report is due tomorrow, Tuesday 14 June. I’ll be reading it with interest.
I wouldn’t buy any stock without undertaking thorough research. But these two are high on my watch list and I’d consider them now for my long-term diversified share portfolio.