The economy remains weak, both in the UK and further afield. Bond traders increasingly seem to expect a US recession this year. Against that background, the prospect of a stock market boom coming any time soon may seem unlikely.
So ought I to buy now and hold? Or would a better strategy for my portfolio be waiting to see if there is a stock market crash and then diving in to scoop up cheap bargains?
Perils of market timing
On paper, waiting for a crash might sound like a smart move. But what if it does not arrive?
There will be a market crash sooner or later, but nobody knows when. It could be this month, but then again, it might still be decades away.
If market timing was possible, I expect loads of investors would do it. In reality, what will happen next in the stock market is always a matter of speculation, not certainty. Waiting for a stock market crash that does not come could mean I sit on my hands for years, while shares get pricier. In an inflationary environment, having my cash sit idle means its real value could decrease over time.
So trying to get in at a low point just before a stock market boom starts may sound great in theory, but in practice I do not think it is a viable investment strategy.
A market of shares
What should I do? Rather than focussing on the stock market as a whole, I find it helpful to remember that it is a market of individual shares.
So rather than waiting for a stock market boom, I am buying now – but selectively. That is because I think some shares look like good value relative to what I see as the long-term worth of the businesses concerned.
As an example, that is why I have added Airtel Africa to my portfolio in recent months. Maybe if there was a stock market crash, I could pick up the shares cheaper. But I see no reason to wait. They are already 18% cheaper than a year ago and trade on a price-to-earnings ratio of under 9.
Yet I think the surge in digital money use in Africa could boost profits for the firm, on top of an already strong mobile telecoms business. So I see the share price as good value.
Buying now
I may be wrong, of course. Airtel Africa had $3.6bn of net debt on its balance sheet at the end of last year, more than half a billion dollars more than just the year previously. Servicing that debt is a risk to profitability.
Still, I think the business outlook looks strong and the share valuation is attractive.
Waiting for a crash could cost me, if the shares actually move up in value instead of down. In any case, with a 3.7% dividend yield, I am earning money by owning them regardless of what happens to the share price.
Although I do not expect a stock market boom in the near future, I am willing to wait. By buying quality shares now when they are attractively priced, hopefully I can benefit in the long run once the next boom does arrive!
