If you’re a long-term stock investor like me, 2022 has been an interesting year.
Prices have fallen 30, 40 even 50% on some of the stocks i’ve personally handpicked. This is despite those same businesses remaining profitable all during the pandemic and the war in Ukraine. These same businesses are now posting ‘record’ profits in 2022.
Yet, the share prices are down.
Investors Remain Uncertain
Why? Simply put…. it’s due to Investor Sentiment.
It’s got nothing to do with the underlying business performance. At least, not in the case of the stocks I own in my portfolio. Their financials are doing wonderfully well. They’ve been investing those profits back into their own growth strategies and under the bonnet everything is looking very exciting.
Just today I have been reading up on one of my stocks annual reports. Profits rose 8% in 2022 and they have been achieving a 20% net profit every year for the last 15 years in the row.
Yet the share price is down -56% this year. On face value it seems to make no sense.
Prices are down because of a lack of certainty amongst investors. They don’t know what’s coming. So they stop buying stocks, for now.
What do the laws of economics tell us happens when demand dries up and there’s an over-supply? Prices fall.
When investors begin to feel certain about the markets again (whether misplaced or not) they’ll start buying stocks. In fact, it may have already begun.
Have We Found The Bottom Yet?
My hand-picked stocks reached their lowest prices for the year in September 2022. A full year since they started to fall from their September 2021 highs. They remained low in October 2022, but the final two weeks of that month we saw a jump in share prices.
What initially looked like another losing month turned into a +1% winning month by the end. Albeit, not very exciting. But prices lifted in October.
Then last month, in November, we saw that rise continue. Prices have now risen to the highest we have seen in the last 15 weeks. I finished November 2022 up +10%. That’s quite a hefty jump.
The first week of December has so far seen prices largely stay there so far.
We may have seen the bottom.
It’s entirely possible that September 2022 was the low point. I’m not suggesting everything will be plain sailing from here, and I could be just as wrong as I am right. But it may be that we will never see those September prices again now.
That’s a sad thought. I didn’t buy enough in September. In fact, personally speaking, I only bought £2,165 worth of shares in 2022 on the way down. Of course, i’ll be buying on the way back up as well, but the best time to buy is the bottom. That’s where you get the most for your money.
Don’t Miss The Boat
Investment brokerage Hargreaves Lansdown reported in their annual report that most everyday retail clients choose to wait 2 years after the bottom has been reached before they decide to start investing again. The average investor wants to be sure the markets have fully recovered before they start buying stocks again.
This is a tragedy in my opinion.
Two years after the bottom means they’ve missed the crucial window. They’ve missed the boat. By then the window of opportunity has closed.
If you read and study the amount of investing books I have, you’ll know that the vast majority of successful, wealthy investors made their money during crashes. They bought when no one else was buying. Those that are alive today are probably buying right now.
Yes the markets ‘could’ continue to fall. But if they do, I do not suspect they’ll fall much further.
Why? Because prices are already dirt cheap for many stocks.
An Example of Cheap Stocks
Take [LSE: IDS] (formerly Royal Mail). Not a stock I would buy personally, but trading today at £2.50 a share. Yet achieving 61p a share in profits right now. But more importantly, its net assets (assets – liabilities = net assets) come to £5.3 billion. Break that up into a per share basis and you are looking at £5.58. More than the cost of the shares!
In other words, you could buy 100% of IDS/Royal Mail shares for £2.4 billion today and instantly own £5.3 billion in equity. And still be making 20% profit return a year on your investment.
This means the stock is dirt cheap right now.
Now i’m not suggesting you run out and buy the stock. It’s not a stock I recommend. But we’re seeing these dirt cheap prices across many of our most favourite stocks right now because prices have spent the last 12 months falling and falling due to the doom and gloom swirling around. Yet the underlying businesses are doing wonderfully well. No debt, huge profits, and wonderful growth strategies.
The Upcoming Recovery
Prices won’t stay low forever.
I would not be surprised if September 2022 turns out to be the bottom and 2023 is the year we start to witness a slow 2-3 year recovery.
This means the window is quite likely to be closing in the near future.
How do you know the best time to start buying stocks? When prices are so cheap it doesn’t make sense to wait. That’s now! Providing you pick the right stocks.
Want some help picking the right ones? You know where I am.