There’re many concerns on investors’ minds right now, such as Covid-19, the US presidential election, and the Brexit Free Trade Agreement negotiations, among others. And the main stock market indexes have been weak because of it all. But I reckon it’s a great time for me to research the best shares I’d want to buy now.
The thing about all those uncertain things is they’ll all likely pass over time. And one market indicator tells me many investors are looking ahead towards the next economic recovery. Indeed, the share prices of the London-listed banks have been creeping up. And bank shares are known for being leading indicators about where economies might be going.
Are banks the best shares to buy now?
I learnt from Peter Lynch – the one-time outperforming US fund manager – that banks are often the first into and the first out of recessions, for example. And there’s no denying the collapse in bank share prices earlier this year was in tune with how events were to playout for the economy. So, with banks on the rise, perhaps we’ll see better economic times ahead soon.
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Indeed, the banks have been surprising the market lately with the strength of their earnings. So, is it time for me to rush out and buy shares in companies such as Lloyds, NatWest, HSBC, Standard Chartered and others? Maybe. But if I did, it would only ever be a short-term investment for me – a swing trade to use stock trader parlance.
I don’t believe bank shares make decent long-term, buy-and-forget investments. The cyclicality inherent in the underlying business operations means that over a period of 20 or 30 years, investment returns can fluctuate up and down and overall progress could end up being frustratingly slow. However, a shorter-term investment in the banks could be lucrative.
Consistent, cash-producing enterprises
But another way of handling the general market weakness now is for me to look at the shares of strong businesses. Many have been pushed down, such as GlaxoSmithKline, British American Tobacco, Reckitt Benckiser, and Smith & Nephew. I think steady, consistent, cash-producing businesses like those are more suitable for a long-term buy-and-hold strategy. Indeed, I reckon they, and others like them, could be excellent vehicles for compounding my returns in the decades ahead.
So cheaper share prices now can work to my advantage if I invest with a long time frame in mind. And if I plough back in all my gains, such as dividends. But the strategy could work well with collective investment vehicles as well. So, I’d consider managed funds, investment trusts and tracker funds. Indeed, regular investments now could serve me well in the years ahead as the stock market recovers and underlying businesses grow in the next economic recovery.
