Amid market volatility, it is understandable to feel restless. As an average investor volatility, the degree of an asset’s price moving up and down, could be your friend because it provides several entry points in order to realise a profit from your investment bets in the long run.
However, many are afraid to invest amid volatile markets, despite it being historically proven that big money can be made from investments made when the season is rough.
The broader index of the London Stock Exchange, the FTSE 100 index is often considered as more of a global index as the majority of its constituent stocks are global companies. So, if you are buying these stocks which are at present trading at a discounted valuation against their peers, you could certainly be benefited in the long run. Also, you are not just buying UK stocks; instead, you are buying global shares at discounted valuations.
As the world’s most respected investor of all-times- Warren E Buffet, said that investing is a long-term game and volatility should be considered as someone’s friend. One should take an active approach to benefit and minimise risks amidst market volatility.
So, here some investment tips that could help to benefit from the prevailing market volatility in the United Kingdom
- Buy great business when their stocks are trading relatively at a discounted valuation against the peers.
There are a number of solid UK businesses which at present are trading at a discounted valuation and if you own a cross-section of those businesses and hold them for an extended period of time, you will be going to benefit from your investments.
Also, together with great quality businesses, many of them are offering decent dividend yield, which implies that one could potentially gain decent capital appreciation over time with good dividend income as well.
Also, we observe that there is a 30 to 40% valuation gap between US stocks and UK stocks, as the UK market has not been a part of the last global stock market rally. As a result, there is significant valuation gap between UK stocks and US stocks. This, we believe, it is going to get closed out over the next few years.
And, to achieve a valuation equilibrium with the US stocks, UK stocks have to appreciate in between 30-40% from the current trading levels, which offers a very lucrative buying point for investors.
Therefore, as an average investor, you should focus on owning quality businesses available at discounted prices against their global counterparts and hold them for an extended period of time.
- Set a financial goal
Before one is about to debut into the equity investing arena, one should draw a clear goal with definite time frame and do some brainstorming why he is investing, and purpose of investment should be well documented. Having a well-defined goal before commencing your investment journey is most vital, and this will help you make decisions which would help you to realise decent return from the market over the long-term.
Diversify your equity investments
Remember, what Warren Buffet said, “Do not put your all eggs in one basket”. Diversification is essentially required in equity investments because it acts as a shield against a large swing in the market.
To protect your investments, buy stocks in various companies with diversified businesses. One should focus on creating a portfolio of stocks which is a mix of large-cap, mid-cap, small-cap, micro-cap and dividend-stocks. A concentrated portfolio in the lines of all the above-mentioned themes could harvest a very decent return in long-term and it will also help investors beat benchmark returns consistently.
- Avoid emotions attached to the stocks
If you are betting on your portfolio and you get too upset because of fluctuations in the prices, then probably the stock market is not the right place for you to park your hard-earned money. Many people do foolish things because their stocks went down and they think that they shouldn’t own stocks at all.
You have to be very active in managing your portfolio, and your hard work is not always rewarded by commensurate returns. Sometimes you go wrong and you need to square off your position on that particular counter. Equity investing is an infinite game and one needs to play this game with infinite number of rules. Therefore, you have to keep updating your knowledge and skills to make rational decisions.
- Catch the trend
It is essential for an average investor to catch the current trend, as this could benefit you in medium-term. For this, you need to identify the sectors which are trending globally and add some of these stocks to your portfolio.
- Do not churn your portfolio very often
Market is full of noise and rumours and frequent churning of your portfolio based on those market rumours cannot lead to you to achieve your financial goals. Identify some of fundamentally sound companies based on your research framework you have developed; these stocks should provide an adequate margin of safety. You should stick to these stocks for an extended period of time. An investment which does not provide margin of safety and adequate rate of return are generally speculative in nature.
- Hire Financial Advisors
We endorse the concept of professional financial guidance because a financial advisor possesses the necessary skills required for equity investing. An investment journey with a prudent financial advisor could help you achieve your financial independence; the role of a financial advisor is very vital to achieve your goals. They keep themselves aware of the current events and monitor developments prudently. Generally, average investors try to test the depth of the water with both their legs, which could turn out to be counterproductive for them, forcing them to exit equity investing completely for the rest of their lives. Here, financial advisor plays a crucial role to protect your investments through a proper risk-return trade-off. Their guidance could help you in catching the trend, developing a portfolio of sound businesses and they also suggest the applicable entry and exit levels based on their research work. Average investors keep putting the blame on the stock markets and macro-events rather than self- introspection. It is better to consult a financial instructor to who can help you to construct a decent portfolio and shield your portfolio from against an unusual risk by paying him a small amount of fees.
Above, we have shared some basic steps for investment that could help average investors to perform decently in their equity investment journey.