Is it too early to find cheap shares to buy?

Throughout history, periods of volatility have proven to be the best time to find cheap stocks to buy. But the stock market is moving up and down like a yo-yo this month.

So, many are reluctant to put money into their investment portfolio. After all, many bearish predictions have started to emerge about another crash.

Is it too early to start capitalizing on seemingly cheap UK stocks?

Market timing rarely ends well

In the short term, the stock market is notoriously unpredictable, especially during periods of volatility when emotions run high. Trying to pin-point the pinnacle of human pessimism is impossible. While some succeed, this often boils down to pure luck rather than skill. And relying on luck is not a wise investment.

There are many reasons to have a negative view of the stock market today. Inflation is at record highs, interest rates are rising rapidly, supply chain shocks continue to wreak havoc on businesses, and we’re also in the midst of a cost-of-living crisis.

So it’s no wonder that doomsday predictions are overflowing. But despite all this negativity, the real macroeconomic situation is improving. As highlighted in the government’s latest budget.

The UK is not expected to fall into recession, inflation is on track to return to its target of 2.5% by the end of this year, and unemployment is predicted to rise to no more than 4%.

Forecasts should always be taken with a pinch of salt. But the results all go against predictions of a stock market crash in 2023, and show the time is ripe to find the best stocks to buy.

Waiting for events that will never happen can create enormous opportunity costs. See Dr. Michael Burry’s predictions. He is a former hedge fund manager who correctly anticipated the 2008 financial crisis and was among the many bearish investors who warned him to stay away.

But it is important to note that he has been predicting the global financial crisis since 2017. Even after all the recent volatility, those who listened have missed 62% of the return of S&P 500 and 31.5% of the proceeds (including dividends) from FTSE 100.

Focus on the long term

Whether the stock market will crash in 2023 is anyone’s best guess. If so, even investing in the best UK stocks can be a risky move. At least in the short term. But if they don’t, investors could miss a rare buying opportunity that may not happen again for another decade.

So what is the right course of action? The answer ultimately depends on the individual’s risk tolerance.

Those who can handle short-term volatility can take advantage of today’s discounted value while still hedging downside risk by using a very simple strategy – pound cost averaging.

Instead of throwing all available capital into the market at once, investors can spread it over weeks or even months. Thus, if the price continues to fall, more shares can be bought at a better price.