Cheap shares: a rare chance to get rich?

Many investors will be discouraged by the poor performance of their stock market portfolio. Across the pond, the S&P 500 and Nasdaq Composite is in a bear market. Close to home, the FTSE 100 that’s where it was five years ago and on FTSE 250 has taken a hammering over the past year.

However, as a dedicated follower of the long-term Foolish approach to investing, I see the brutal sell-off as a golden opportunity to buy cheap stocks.

Lessons from Warren Buffett

Stocks are a very popular asset. In good times, this means investors celebrate as wealth compounds.

However, when stock prices fall rapidly, it can be difficult to stay disciplined and keep your long-term goals in mind. In times like these I seek guidance from the world’s most successful investor, Warren Buffett.

As a student of Benjamin Graham, the Berkshire Hathaway CEOs are known for their value investing philosophy. Buffett invests in high-quality businesses that are undervalued before they can sell them later when they reach what they think the market value is worth, or just hold them for many years.

Fear when others are greedy and greed when others are afraid.

Letter from the Chairman of Berkshire Hathaway, 1986

A stock market correction can provide a good opportunity to buy cheap stocks when the price drops.

Buffett’s favorite holding period is this “forever“. He suggests that if investors don’t want to own a stock for 10 years, they shouldn’t think about it for 10 minutes.

Shares are cheap

So where can I find long-term buy deals in the stock market?

Looking stateside, mega-cap tech stocks have taken a beating. Some of the most successful companies of the 21st century seem tempting to me after a lot of haircuts. Mainly, I’m looking for it Apple, Alphabet, Amazonand Microsoft.

Savings	12 month performance
Apple	-24%
Alphabet	-37%
Amazon	-46%
Microsoft	-28%

There are echoes of the dotcom crash in those numbers. For example, Microsoft stock took 16 years to recover from its peak in December 1999. Today, it is worth three times that.

If I invested $1,000 a year later on January 10, 2001, today I would have $8692.89. It has returned 769% over 22 years, excluding dividends. Not bad, and a good starting point for my goal of getting rich.

Of course, there is a risk that stock prices could fall again if the US economy enters a recession, or if the Fed raises interest rates aggressively.

However, I believe they are a great company with a bright future. I see 2023 as a good year to buy these stocks at very low prices.

There are also many cheap UK stocks. One thing that seems good to me right now is Scottish Mortgage Investment Trust. It invests in growth stocks from public and private equity markets around the world. The share price is down 34% in 12 months.

The fund faces the same risks as US mega-caps from a possible global recession and restrictive monetary policy. However, the trust has an excellent track record of generating astronomical returns for shareholders.

Although past performance does not guarantee future results, I will buy more Scottish Mortgage shares this year.

A chance to get rich?

Historically, large stock market declines are relatively rare. Quality companies are more often in the uptrend than not.

With that in mind, I’ll be deploying my spare cash into cheap stocks this year in an attempt to – finally – get rich.