I’m usually positive about the outlook for stocks and shares. However, the timescale for that optimism varies.
Over the years and decades, shares as a class of asset have risen in value. And in the shorter term, bear markets have always so far been followed by bull markets.
I’d be pessimistic in the short term if the markets began to plunge into a bear phase. But my optimism for the longer-term outlook would likely keep me buying stocks and shares. And the often depressed valuations in a downturn could make that buying a lucrative activity.
Long-term potential
We can get some idea of the longer-term potential for UK stocks by looking at the performance of the FTSE 100 index. It started in January 1984 at 1,000 and is around 7,500 today.
That’s the kind of long-term trend I want to target for my portfolio. So, for me, it’s stocks and shares all the way. And if they go on sale in a shorter-term bear market or general economic downturn, all the better — that’s when the stocks of great businesses have keener valuations. And buying then could power even better returns over time. Although positive outcomes are never guaranteed, because all shares carry risks as well as positive potential.
Successful and well-known investors have been operating like that for decades with spectacular long-term outcomes. For example, Warren Buffett, Lord John Lee, Peter Lynch, Nick Train, Terry Smith and many others.
Meanwhile, I’m seeing plenty of positive potential in the markets for 2022. My reading of the situation in 2021 is that many stocks declined, although the main indices didn’t. So that led to what some people labelled a correction by stealth. And it blew the speculative froth from many company valuations.
The autumn saw the arrival of the Omicron variant of coronavirus and fear once again gripped the markets. The situation acted as a brake on many stock prices. However, concerns have eased and it looks likes stocks are gaining traction. My guess is positive sentiment will continue to grow as the year unfolds because of an improving outlook for businesses.
Looking for great compounders
In short, I think it looks like a great time to be shopping for the shares of quality and growing businesses right now. And my search leads me to enterprises that I’d be glad to part-own for the long haul. My plan would be to allow the underlying businesses to compound their earnings as they grow and thrive in the years ahead. And I’d expect share prices to adjust upwards to reflect the progress. However, positive expectations can be thwarted if a business faces any operating challenges in the years ahead. And I could even end up losing money on some stocks.
Nevertheless, I’m keen to embrace the risks in order to expose my portfolio to the potential for gains. And with that in mind, Imperial Brands, Next, Computacenter, GlaxoSmithKline and DS Smith are all at the top of my list.
Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended DS Smith, GlaxoSmithKline, and Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
