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Not only is a stock market recovery imminent, I think it’s already happening.
It’s messy, of course. Not all stock prices are rising. Some even fall. But that’s probably just the process of a soil working through. So I buy selective stocks now to hold for the long term. But only if I see good value for money and decent growth prospects for a company. And when recent good news about trading is in the bag.
But what about those many asset bubbles we’ve seen? Are they all cracked now or is the risk still there? And is it wise to wait until they are all deflated with investing in stocks and shares?
For me, the most important assets to think about are stocks and stocks themselves. And more specifically, the individual companies I would like to invest in. So my focus is on company news and current valuations being offered by the stock market.
There’s always a bubble somewhere
But asset bubbles sometimes have the potential to derail investment in the stock market. A good example of this was the subprime mortgage bubble of the 1990s that led to the credit crunch in stock prices.
But there always seems to be a bubble somewhere. Speculation and human nature have provided countless examples over the centuries. For example, in recent times we have seen bubbles in assets such as cryptocurrencies and meme stocks. And we could be living through a commodity price bubble right now.
I think it’s unrealistic to wait for each bubble to burst. There is always a bubble in there somewhere and therefore something to worry about. But that hasn’t stopped the stock market from climbing its usual wall of worry.
And why wouldn’t it recover now? Many companies have acted well and there have been many recent positive company updates. Yet many company valuations still seem to be under pressure. And many stock prices remain close to their recent lows.
A robust business indicator
One of the most robust indicators of business strength is the way so many companies are buying back their own shares. Companies tend to do that when they have more money than they need to reinvest in their business. In theory, it helps shareholder returns by reducing the number of shares outstanding. Thus, the remaining shares are worth more to investors because they attract a larger portion of the company’s future dividends.
There may still be bubbles in asset prices and the immediate economic road looks a bit bumpy. But I am very confident in the ability of many companies to adapt to changing circumstances. We’ve seen a lot of that during the pandemic. And we’re seeing it now with the price inflation crisis.
So now is a good time for me to shop for the stocks of strong and sustainable companies. And my goal is to hold stock for the long term as operational progress unfolds in each underlying company. Meanwhile, the inevitable sound of bubbles inflating, deflating and bursting won’t deter me!