Should investors buy UK stocks now for a bull market in 2023?

Many UK stocks are taking a bashing in 2022. And this year is dominated by geopolitical and economic upheaval caused by the war in Ukraine.

However, successful contrarian investor David Dreman wrote: “The market crisis offers an extraordinary opportunity for profit because it unleashes the wildest overreaction.”

Dreman’s book Contrarian Investment Strategy details of the approach to investing in such situations. But the main point is that stock prices tend to fall too much in a crisis and end up underestimating the true value of the business.

Surprise up

But Dreman is braver than I am. That approach involves buying stocks when the mood is at its darkest – perhaps while the stock price is still falling. He said in the book he goes into the crisis of investing with a hard-hat. And they diversify their stocks if they pick duds that fail to recover.

But before I invest, I like to see some evidence that the market and individual stock prices may be close. And the last two or three months of 2022 provided the clues I was looking for.

Indeed, despite the sudden drop in share prices, many fundamental businesses continue to issue good trading figures and optimistic outlook statements. And the market was shocked. I can see that the news release caused a bounce for many stocks.

And that kind of market action makes me optimistic that a new bull market is about to begin. After all, during a bear market, good news tends to be ignored and stock prices continue to decline.

Meanwhile, to read the situation, the economic and geopolitical storm clouds are generally starting to break. And the first chinks of light have begun to appear in the sky. So I think the situation looks poised to support business as we move into 2023.

Big market turn

So, for me, now is the time to act. And another great stock trader and investor called Jesse Livermore made millions by aiming to find big turns in the market. He said in his book How to Trade in Stocks that he aimed at Share as close to the beginning of the big move as possible. But he’s waiting for evidence of a turnaround before buying shares.

I think there is mileage in combining Dreman’s and Livermore’s philosophies. And that is best described as taking a contrarian approach to trend following. In other words, I’m going to find an undervalued business and block it now, despite all the negative public news. Then I want to stay with the stock as the underlying business recovers and grows over the next year.

No one knows if there will be a bull market for UK stocks in 2023. But I have been busy researching and buying UK stocks now individually. I could be wrong and I could lose money. However, I am optimistic about the outlook for the underlying business in 2023 and beyond.