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Among the many pieces of sage advice Warren Buffett has given over the years, his belief that investors should “be fearful when others are greedy and greedy only when others are fearful” is perhaps the most memorable. Buying UK shares and other assets when markets fall can deliver substantial long-term gains.
Trying to ‘catch a falling knife’ by investing in bear markets can be a risky strategy. Yet it can also supercharge an individual’s returns over time by delivering stunning capital gains when investor confidence recovers.
It’s why I’m planning to keep buying more shares, funds, and trusts for my own portfolio.
Record buying
The scale of dip buying by retail investors has been off the charts in recent days.
On Monday (7 April), investment platform Hargreaves Lansdown enjoyed record levels of share trades. It was also a record-breaking day in terms of the amount of money being invested in financial markets, the company noted.
Hargreaves said there were “significantly more buys than sells as clients sought to benefit from big drops in equities“, with 68% of all orders being ‘buy’ instructions. This rose to 80% on Tuesday.
I myself have looked to increase my exposure to gold by purchasing the L&G Gold Producers exchange-traded fund (ETF). And I have money on call in my Self-Invested Personal Pension (SIPP) I plan to use in the coming days or weeks to pick up some bargains.
Thinking long term
The widescale resetting of worldwide trade rules feels like a seismic moment. But for share investors, it’s important to remember that stock markets have fallen during previous economic earthquakes and downturns, and come out the other side far stronger.
At times like these, I try to reassure myself with another pearl of wisdom from Warren Buffett. He said:
In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
A dirt-cheap UK share
Defence firm Babcock International (LSE:BAB) is one fallen UK share I have my eye on for a potential recovery. That’s even though new trade obstacles could cause supply chain issues and push up its costs.
Its share price has dropped almost 7% in value over the last week. At 672.5p per share today, it trades on a forward price-to-earnings (P/E) ratio of 13.2 times. This makes it one of the cheapest UK, US, or European defence shares to choose from today.
Despite the risks I’ve described, I expect Babcock shares to rebound as global arms spending climbs. Revenues rose 11% in the six months to September, reflecting its strong relationships with the UK Ministry of Defence and other NATO countries like France and Canada.
With NATO members tipped to raise arms spending to 3% of their GDPs by 2030, the long-term outlook at Babcock is bright. It’s one of several beaten-down UK shares I think are worth considering right now.
