I would like to start investing in the current stock market – here’s why

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The economy doesn’t seem to be doing very well. Inflation is very high. A recession is expected. Despite that, the FTSE 100 index of leading stocks has risen 5% over the past year. Does that mean this is a frothy stock market out of touch with economic reality? Or does the exuberant market still offer opportunities?

In other words, if I wanted to start investing, would I dive in today – or wait in hopes that stock prices will fall?

The Market Timing Challenge

The easy answer is that no one knows what will happen next in the stock market. Many investors have strong opinions. But exactly how it will go is unknown.

That makes it difficult to time the market. It is always possible that it crashes unexpectedly. Likewise, the market could continue to rise. Nobody knows.

A market of stocks

But if the next market moves are unclear, how can I decide if now is a good time to start investing?

One way would be to move from a high-level view to a more detailed view at the individual stock level. As the old saying goes, it’s a stock market, not a stock market. In other words, the FTSE 100 and any other stock index reflects the change in value of a basket of stocks. A sports team can perform poorly despite some players playing brilliantly. It is the same in the City. Whatever happens besides the stock market in general, some individual stocks can perform very well in the coming years.

The challenge is to find them!

Finding Stocks to Buy

So basically I think now might be a good time to start investing, depending on the stocks I’ve bought. How would I choose them?

I focus on a few things when buying stocks. The first factor has nothing to do with the stock market at all. It is purely about the quality of a particular company. Can a company make a profit in the future? To estimate the likelihood of that, I would look at the business model. If it has a competitive point of difference in a market that I believe will see continued customer demand, it may be able to turn that in its favor.

But the second thing I look at when looking for stocks to buy for my portfolio is definitely the stock market. If I think a company has strong prospects, can the current share price still offer me value?

Ignoring stock market noises

If a stock offers me value, I ignore the broader market noise and consider buying it for my portfolio.

For example polymer maker Victrex is more than 30% cheaper today than a year ago. There are risks to the company’s profitability, such as rising utility bills. But I think his proprietary technology gives him a competitive edge, while his current stock price seems attractive to me from a valuation perspective. I follow the same principles when buying individual stocks, no matter what happens in the broader stock market. That’s why I think it can always be a good time to start investing, as long as one focuses on quality companies that sell at attractive valuations.

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