Stock Market

Don’t wait for risks to subside to buy shares – that time will never come


Some stock market investors will have avoided buying shares ahead of today’s Budget. After all, it could have far-reaching consequences for the performance of companies that are reliant on the UK economy.

However, even after the Budget has passed, investors will still be unable to breathe a sigh of relief. The US election is now imminent, with its outcome potentially having major repercussions for the global economy’s growth outlook.

In addition, conflicts in Ukraine and the Middle East are showing little sign of abating. Any further escalation could negatively impact the world economy’s prospects, thereby putting downward pressure on share prices.

In Questor’s view, such geopolitical and economic risks are omnipresent. Investors who wait for a period of complete calm before buying shares are therefore likely to end up accepting paltry returns from cash over the long run. Even if the threat from known unknowns appears to be low, unforeseen challenges such as the pandemic can prompt severe stock market turbulence. 

Rather than waiting for the perfect moment to buy shares, investors should instead view the existence of risk as an opportunity to buy high-quality companies at discounted prices. 

By obtaining a margin of safety when purchasing shares, which means buying a stock for less than it is worth, investors can moderate their potential losses. After all, cheaper stocks are likely to decline to a far lesser extent than expensive stocks in a market downturn.

Buying companies for less than their intrinsic value also provides greater scope for long-term capital gains. Although the stock market always has and will experience temporary periods of intense volatility, ultimately it has always gone on to produce new record highs over the long run. Investors who stick with a diverse range of holdings are therefore extremely likely to enjoy far higher gains than those available from other mainstream assets.

Indeed, even after their lacklustre performance in recent years, UK shares still have an excellent long-term track record. Both the FTSE 100 and FTSE 250 indices, for example, have produced high single-digit annualised total returns since inception.



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