August proved to be a difficult month on the London stock market. The FTSE 100 fell 2% thanks to a sharp drop in the second half. And Britain’s blue-chip index hasn’t exactly got the new month off to a flyer, either.
The FTSE index has plunged below 7,200 points on Thursday and hit six-week lows earlier in the session.
But I’m not tempted to sell my holdings and run for cover. Even if a full-blown stock market crash happens, I’ll continue to buy UK shares. It’s a tactic I think could help me become a millionaire investor.
Wheat vs chaff
In order to make market-beating returns, I have to behave in a different way to everyone else. That makes sense, right?
What this means today is that I should be looking to buy beaten-down stocks that others are selling.
Many companies that are vulnerable in this economic downturn have been heavily sold. And I need to avoid these possible investment traps like the plague.
But plenty of quality companies have also been unfairly sold off as panic has set in. These are the ones I’ll be looking to buy: firms that have the strength to weather a possible global recession, and whose long-term earnings outlook remains super strong.
Thinking like Buffett
This is how a new class of investor emerged during the 2010s: the Stocks and Shares ISA millionaire. As of mid-2022 there were 2,000 of these individuals.
Hundreds of these stock market millionaires emerged in the aftermath of the 2008 financial crisis. How? They followed the advice of billionaire investor Warren Buffett to be “greedy when others are fearful” (and vice versa).
These investors bought quality UK shares on the cheap at the height of the crisis. They then watched them soar in value in the 2010s as economic conditions improved and market confidence returned.
By buying cheap UK shares in 2022, I’m aiming to replicate their successes.
Making millions
Becoming a stock market millionaire isn’t easy. It often requires a commitment to regular investment. It also involves having a sound investment strategy that can take time and effort to draw up.
On the plus side, though, the miracle of compound returns means that I don’t have to spend a fortune to get rich. By reinvesting the dividends I receive, I can generate extra profit by getting dividends on what I’ve reinvested in, as well as on the shares I originally bought.
This creates a long-term, wealth-building snowball effect.
Let me show how this works in practice. The average long-term return on UK shares sits at around 10% a year. If this remains the same then I can expect, after 30 years, to have made a whopping £1,039,646.
But I think I could become an investing millionaire even faster. By buying beaten-down stocks today, I could make an even better return that that 10% average if, as I expect, the market eventually recovers.
History shows that stock markets always bounce back from economic crises. And investors who buy shares during dark times like today can make massive wealth over the long run.