We investors keep a close eye on newsflow, in order to gauge whether it might weigh on the shares we own. Or, equally, if a buying opportunity might present itself. But my next statement might shock you. Here at The Motley Fool – a financial and investing-advice company, no less – we don’t believe there is a good time to buy shares!
Let me clarify that. We don’t believe there is a bad time to invest.
Confused? I’ll explain myself. We’re advocates of spending time in the market, as long-term investors.
We also recognise that not every investment will return with interest. But we Fools (upper-case F!) do believe that investors stand a better chance of returns with a diversified (or ‘motley’) portfolio, comprising a wide range of stocks.
We also aim to invest regularly, regardless of what’s happening in the world.
So while we don’t try to time the market, you’ll find Fools buying shares as usual whatever the investing climate!
Historically, stock markets rise. Just look at where the FTSE 100 started in 1984 (under 1,100) and where it sits today. In bull markets, others may prefer to sit on their hands – and cash, keeping their powder dry. Perhaps because they may think that shares are overvalued. But Fools will keep investing in top-quality companies…
We recognise that great companies will very rarely offer us a great price when it comes to traditional metrics, such as price-to-earnings or price-to-book ratios. Therefore, we are simply looking for prices that do not accurately reflect the greatness of the business.
Likewise in times of turmoil (March 2020’s stock market crash isn’t too far back in the rearview mirror)! Recessions tend to occur roughly once a decade. And, to quote Warren Buffett, ‘we simply… be greedy only when others are fearful‘. So in bear markets, Fools look for undervalued shares in sector-leading companies, with shareholder-focused management – exactly the same as we do in bull markets!
By concentrating on companies with high quality management, strong balance sheets and solid free cash flow, and buying only when we feel we have a significant margin of safety, we try to reduce our risk of losing money.
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