The recent stock market crash may have prevented some investors from buying UK stocks. Their volatile performance and uncertain outlook could mean that investors are holding cash or other low-risk investments.
However, buying undervalued stocks after a market downturn may prove a sensible step. It is a strategy that has been used successfully in the past by star investors like Warren Buffett. By buying high-quality companies when they are traded at low prices, you can use the exchange cycle to your advantage.
First the boom, then the crash
The recent market crash has clearly surprised most investors. However, a decline in stock prices is relatively common in itself. Indices such as the FTSE 100 and FTSE 250 have never had uninterrupted growth. Instead, they have experienced periods of boom and recession that offer investors the opportunity to buy stocks at low prices. And sell them later at higher prices.
It is obvious that buying undervalued UK stocks is a difficult task when the economic outlook is difficult. Investors can experience short-term paper losses as it is almost impossible to determine exactly when the market will experience its next recovery.
However, since the market has a strong track record, you can increase your chances of high returns on the stock market simply by taking a long-term stance. This can help you look beyond short-term disappointments and focus on the potential for a turnaround.
Buying shares after a market crash
Buying stocks after a market crash like Buffett can increase your chances of making a million dollars. The chances are even higher if you do it like him.
For example, Buffett has always focused his capital on a relatively narrow range of industries. This ensures that he understands exactly how they work. This can improve his ability to identify the strongest companies within a particular sector, which could increase his overall return.
In addition, Buffett focuses on stocks that have a competitive advantage over their competitors. For example, they can have a unique product or a lower cost base than their competitors. This can increase their chances of surviving a difficult economic period after a market crash. And that could also increase their chances of increasing their market share in order to achieve an improved return.
An uncertain future
There is clearly a chance of a second market crash should investors’ mood weaken in the coming months. Try to buy high quality UK stocks in sectors that you understand while being good value and keep them long term. Doing so could increase your chances of earning a million.
The post stock market crash: I would listen to Warren Buffett and buy cheap British stocks to make a million appeared first on The Motley Fool Germany.
This article was written by Peter Stephens in English and on July 25th, 2020 on Fool.co.uk released. It has been translated so that our German readers can take part in the discussion.
Motley Fool Deutschland 2020