I reckon a stock market recovery is imminent. And several well-known investors have been pointing out the positive potential building in stocks and shares.
Setting up potential multi-baggers
The bear phase has been brutal for many names. Share prices have been grinding lower for months now. I listened to a recent podcast by popular small-cap investor Paul Scott last week. And he mentioned that company earnings have been falling in some cases, yes. But on top of that, valuations have been compressing as well.
So a company that once had a P/E ratio of, say, 15 might now have one of just six. And when falling earnings and declining valuations co-occur, share prices can plummet a long way.
But Scott appears to be getting bullish because the situation will likely reverse in the next bull market. Any slight recovery in earnings for a business could kick-start a valuation re-rating back upwards. And Scott reckons the current bear market is setting many stocks up to become multi-bagging potential investments in the recovery.
Meanwhile, veteran multi-millionaire stock investor and trader Mark Minervini has been saying for some time that the strongest businesses will likely recover first. And that often happens before the wider market has found its bottom in any bear run. He’s also bullish about the potential for stocks coming out of a bear phase. He reckons some of the best gains happen early on in a recovery bull market.
I’m not hesitating
Minervini’s advice is to not hesitate if we find an attractive situation. So I’ve been working hard on my watchlist of potential stock investment for weeks as the bear market unfolded. But over the past couple of weeks I’ve actually been buying some of the shares I’d been watching. And my intention is to hold them with a long-term investment horizon in mind.
As a lifelong investor, I think it’s almost always a good time to invest in the stock market. And that’s why I’ve kept up my regular monthly investments throughout the recent bear phase. However, the period at the end of a bear market and at the beginning of the next bull is special. And I think we are in one of those special periods right now. They don’t come around all that often. And this one could be a rare opportunity for investors to get rich.
However, it’s worth me bearing in mind that all stock market investing involves taking risks. Operational setbacks within businesses can happen at any time. And we’ve seen recently how unpredictable geopolitical and economic events can affect stock markets.
It’s always possible for me to lose money on my stock investments even if I believe we have good conditions for investing. But I’m aiming to mitigate some of the risks by choosing investments carefully, diversifying between several companies, and by holding for a long time to look beyond shorter-term setbacks.
