The stock market has fallen this year. Persistently high inflation, aggressive interest rate hikes from central banks, weakening consumer confidence, recession talk, the Russia/Ukraine war, high energy prices, and supply chain disruptions are some of the reasons why.
Looking at how much economic uncertainty we face right now, my gut feeling is that a stock market recovery may be a while off. I don’t think we’re likely to see a ‘V-shaped’ recovery like we did in early 2020. However, for long-term investors like myself, that’s not necessarily a bad thing. Let me explain why.
I want to buy low
I’m in my early 40s and plan to retire somewhere around 60. This means I have 15-20 years to save and invest for retirement. Over that period, I’m going to be a net buyer of stocks as I build up my retirement portfolio.
Now, do I want to be buying stocks at high prices or low prices in the years ahead? The answer is low prices, of course. The more money I can put into stocks while the market is down the better. That’s because I’ll get more for my money. And buying low means that when the stock market does eventually recover (as it always has in the past), the value of my portfolio should rocket higher.
Warren Buffett wisdom
This ‘buy low’ concept is explained well by billionaire investor Warren Buffett: “If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.”
So, the way I see it, if the stock market was to stay down for a year, two years, or even five years, it wouldn’t be the end of the world. Because this would give me a great opportunity to build up substantial positions in world-class companies at great prices.
I’m confident that, eventually, the stock market will see a recovery. I want to invest plenty of money before that happens though.
Stocks I plan to buy before a recovery
As for my investment strategy, I plan to keep building my portfolio around the Big Tech companies Apple, Amazon, Alphabet, and Microsoft. These four play a major role in our lives these days and I think they’re only likely to become more dominant in the decades ahead as the world becomes more digital.
I also plan to snap up stocks in other areas of technology such as electronic payments (Visa, Mastercard) and semiconductors (Nvidia, Lam Research) as I expect these industries to grow significantly in the years ahead too.
At the same time, I want to buy more defensive dividend stocks to balance out my portfolio. Unilever, Diageo, and Smith & Nephew are some examples here.
If I can build up positions in these kinds of high-quality companies at low prices in the years ahead, I’ll be very happy.