There’s a lot of uncertainty in the air. But is now a good time to invest in the stock market? For me, it is.
Or to be specific, it’s the right time for me to invest in particular stock opportunities. And the best way to identify those with the most potential is by following the news coming from each underlying business.
A focus on valuation
Although we’ve seen a bear market for shares, we haven’t always seen businesses in trouble. And some companies have been trading well through the current economic and geopolitical conditions.
The alternative to investing in uncertain times is to invest in boom times when the market is soaring and everything looks rosy. However, booming share prices often lead to elevated valuations. And buying shares when valuations are high could lead to poor long-term investments. That applies even if the underlying business is trading well.
Just as share prices, the economy and individual sectors can cycle up and down, so can company valuations. And well-known billionaire investor Warren Buffett wrote an article in 1979 shedding some light on his approach to timing investments. He said: “You pay a very high price in the stock market for a cheery consensus.”
At the time he was debunking the popular idea that there were too many question marks about the near future. Some were arguing it would be better to wait until things cleared up a bit.
The idea was to keep money out of stocks until the uncertainties back then were resolved. And in today’s markets, we may want to see an end to the war in Ukraine and the other side of any imminent recession in the economy.
Uncertainty is the investor’s friend
But Buffett said: “The future is never clear.” And he went on to argue that “uncertainty actually is the friend of the buyer of long-term values.”
In the 43 years since Buffett wrote that article, it’s obvious he’s been following his own advice. He’s often been out buying stocks in bear markets, or when a short-term operational setback sinks a company’s share price. And after buying, he’s often held for years until the original cause of all the worries had long dissipated. This strategy has been a big driver of his phenomenal success.
Meanwhile, I’m happy that today’s economic and geo-political conditions are creating a Buffett-like opportunity in stocks. So, for the past couple of weeks, I’ve been buying some of the shares on my watchlist to hold for the long term.
However, even with this strategy, I could still lose money. It’s possible that businesses could deteriorate further than expected. Or my stock-picking could prove to be off key.
Nevertheless, I’m prepared to embrace the risks of stock ownership in the pursuit of long-term gains. And I’m not passing up opportunities because of worries about whether the time is right to invest in the stock market.