No one knows where the stock market is going next. But this hasn’t stopped the Bank of England from suggesting that a “sharp market correction” might be coming. Considering that the FTSE 100 has been doing well recently, that’s the last thing UK investors want to hear.
But it could be great news for Fools like me.
Looking frothy
To be fair, Governor Andrew Bailey and co have provided some justification for being a bit pessimistic. Collectively, they think assets like shares and bonds are overvalued, at least relative to historical norms.
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This could be because investors are confident that inflation will keep falling. If wrong, it’s likely interest rates will be kept higher for longer. That impacts growth and, ultimately, stock market sentiment.
Foolish thinking
The beauty of long-term investing is that these concerns can be side-stepped.
Yes, a market correction or worse could be imminent. But anyone who chooses to own shares for years (and ideally decades) is sure to experience a least a few wobbles along the way. It’s the price we pay for the possibility of better returns over keeping money in the bank.
So, let’s adjust our expectations accordingly.
Instead of worrying, I’m making a list of companies I’d want to snap up.
Market leader
One example is vehicle marketplace provider Auto Trader (LSE: AUTO).
With an average of 77.5 million visits to its platforms per month, few companies have such a stranglehold over their industry as this one. Put simply, anyone wanting to buy or sell a vehicle in the UK is extremely likely to use the company’s services.
This dominance allows it to generate massive returns on the money it puts to work, not to mention high operating margins.
The trouble with all this is that Auto Trader nearly always trades on a high valuation (currently 25 times forecast FY25 earnings). This is to be expected, of course. The market knows a good thing when it sees it.
So, an opportunity to buy at a lower price? Yes, please!
Growth seeker
Another FTSE 100 share I’d want to buy is Scottish Mortgage (LSE: SMT). This is even though I already have a sizeable holding in the investment trust.
Why? Well, Scottish Mortgage is focused on owning the most exciting/disruptive growth stocks around. You might not remember when Tesla was struggling to get into second gear. But that’s around the time the trust first invested. And this foresight has reaped rewards.
Of course, the issue with buying stakes in these kind of companies is that many won’t make it. Oh, and those that do will require a truckload of patience and cash in the interim.
This helps to explain why the trust hasn’t been popular over the last couple of years. In a high-interest rate environment, those looking for quick profits have been running from companies that need to take on debt to deliver on their growth strategies.
But as a sprightly 40-something (who am I kidding?!) with years left in the market, time is on my side.
Stay the course
I’ve already witnessed all kinds of meltdowns in my investing career. To date, things have always recovered and then some. So, I plan on embracing the next one with gusto.
A market correction is coming? Bring it on, Mr Bailey!
