Why the threat of stock market crash 2 could be an opportunity to buy cheap shares

Investing money in cheap shares today could lead to high long-term returns. Investors may have already priced in the threat of a second stock market crash.
The post Why the threat of stock market crash 2 could be an opportunity to buy cheap shares appeared first on Motley Fool Australia. –

Heightened geopolitical risks across Europe and the coronavirus pandemic mean that there continues to be a threat of a second stock market crash. As such, many companies trade on low valuations that suggest investors have priced in a period of difficulty.

This could mean there are buying opportunities for investors who can look beyond short-term risks and instead focus on long-term growth potential.

Buying cheap shares and holding them for the long run has allowed investors to benefit from improving economic conditions in the past. A similar outcome could take place over the coming years.

The threat of a second stock market crash

Predicting when a stock market crash will occur is always an extremely difficult task. As this year’s market downturn showed, bear markets can come into existence with little or no prior warning. Therefore, anticipating them ahead of their occurrence is not an exact science.

However, today’s elevated risks mean that there may be a higher chance of a decline in stock prices over the coming months. Political risks in Europe remain at high levels, while the coronavirus pandemic could continue to disrupt the economic outlook over the coming months. This may lead to more difficult trading conditions for a wide range of businesses that causes investor sentiment to deteriorate.

Buying cheap shares today

The threat of a second stock market crash means that investors are demanding wider margins of safety from shares at the present time. As such, some companies are trading at prices that are significantly below their historic averages. This means that there may be buying opportunities available for long-term investors who can accept the prospect of short-term paper losses in return for gains in the coming years.

Furthermore, there is no guarantee that a market fall will occur in the near term. Certainly, the stock market is very unlikely to make uninterrupted gains in the long run. However, it could surge to new record highs on the back of fiscal and monetary policy stimulus. This could mean that today’s low valuations are extremely attractive, since they may be pricing in a market decline that does not occur for many years.

Long-term gains

Buying undervalued shares when the threat of a stock market crash is relatively high has been a profitable strategy for many years. It has enabled investors to use the market’s cycle to their advantage.

Of course, value investing may not be popular at the present time. Many investors are more focused on growth prospects for businesses across a variety of sectors. However, over time, the appeal of bargain shares is likely to be recognised by investors as the economic outlook improves. This may mean that today’s undervalued shares deliver market-beating returns that has a positive impact on your portfolio’s performance.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

See The 5 Stocks

*Returns as of June 30th

More reading

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Why the threat of stock market crash 2 could be an opportunity to buy cheap shares appeared first on Motley Fool Australia.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!