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Lots of cheap stocks populate the London stock market right now. And last month, well-known fund manager Mark Slater sent a message to investors who follow his funds, and I’m one of them.
In short, he thinks there’s good value in stocks and shares right now. And the bear market is probably coming to an end. That means the next bull run for stocks may be coming soon.
The bear market is getting old
According to Slater, the bear market that began in late 2021 is getting old. And it has led to downgrades in the valuation of many stocks.
The Slater funds have not owned as many companies with single-digit price-earnings since 2008-9. And that, of course, was during the financial crisis of that decade.
But in some ways, economic and geopolitical conditions have been just as challenging of late as they were then. And Slater pointed out that we’ve even seen problems in the banking sector.
Investor pessimism is skyrocketing. And Slater thinks we’re in the disillusionment phase. But that may be a good thing, suggesting the possibility of better times ahead for stocks and shares.
Slater quoted former fund manager Sir John Templeton: “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” And Templeton was known for investing at the most bearish points in the markets.
But Slater added that bear markets kill the euphoria of the previous phase. They then remove any residual optimism until almost all market participants have turned deeply pessimistic.
And his conclusion is that there is a very good chance that the current bear market is coming to an end, given the current bearish mood.
looking for value
However, Slater insisted that he does not consider market timing within his funds. Instead, his goal is to buy shares in companies he understands. And only if they have the potential to increase your earnings over time.
But crucially, he added that most of the businesses in his fund will likely continue to thrive despite a challenging economic environment. Though he did admit that some may see their growth rates slow temporarily.
However, they are likely to improve their competitive positions by gaining market share or making cheaper acquisitions.
Although, so far, a handful of Slater’s portfolio companies have experienced problems. But the problems are “temporary or repairable”.
Meanwhile, as companies increase their earnings while their valuation multiples fall, they get cheaper and cheaper. And that situation is unlikely to continue. Sooner or later, stocks are likely to rise to accommodate the value accumulating in companies. And this is how bull markets tend to start between the last gasps of a bear market.
To me, Slater’s observations mean this is a good time to buy at a good price. And April may even turn out to be an unmissable opportunity to try to get rich on cheap stocks.
But it’s worth keeping in mind that all stocks carry risks as well as potential upside. And that includes those of companies that trade at a low valuation.
However, finding a good value in the stock market sounds like a good starting point to me when it comes to building a diversified portfolio for the long term.
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