The appeal of UK shares may have deteriorated in recent months in the eyes of many investors. Instead, some now prefer assets such as gold and Bitcoin that have surged higher.
However, the long-term track record of Warren Buffett suggests that buying high-quality businesses when they trade at low prices is a sound means of building a large portfolio in the long run.
With many shares still trading at low prices following the recent market crash, now may be the right time to buy undervalued stocks, rather than gold or Bitcoin.
Buying opportunities among UK shares
Despite the rebound experienced by the FTSE 100 and FTSE 250 since March, many UK shares trade at prices that are significantly lower than their historic averages. This could create a buying opportunity for long-term investors, since in many cases those businesses have solid balance sheets and long-term recovery potential. This means that they are likely to have sufficient liquidity to survive what could be a challenging period for the economy, and to deliver improving financial performance in the coming years.
Investors such as Warren Buffett have enjoyed considerable success in buying undervalued shares when other investors are flocking to other assets. By focusing on high-quality companies that are likely to flourish in the next economic boom, and buying them at prices that do not fully factor-in their growth potential, it is possible to obtain market-beating returns over a prolonged time period.
Of course, it can take a considerable amount of time for UK shares to experience a sustained recovery from a market crash. Some previous bear markets have taken many years to return to previous all-time highs. Therefore, some investors may feel that buying Bitcoin and gold in the meantime, and potentially benefiting from a continuation of recent upward trends, is a sound move.
The problem with that strategy is that a stock market recovery is not obvious until after it has occurred. Therefore, investors may end up purchasing stocks when they are trading at less attractive prices after a recovery has begun. Timing the market is notoriously difficult, which means that a better option could be to identify high-quality businesses with sound fundamentals now, and buy them for the long term. In doing so, you are likely to benefit greatly from the next bull market.
Furthermore, UK shares may offer a more favourable risk/reward opportunity than gold or Bitcoin. Gold’s price has reached a new record high, while Bitcoin’s lack of fundamentals means that it is impossible to accurately value the virtual currency. As such, following Warren Buffett’s time-tested and successful strategy through purchasing undervalued businesses and holding them for the long run could be a superior means of increasing the value of your portfolio in the coming years.
The post Forget gold and Bitcoin. I’d listen to Warren Buffett and buy cheap UK shares to get rich appeared first on The Motley Fool UK.
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Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020