SHARES

Five Brexit bargains hit the sharemarket

By

The Brexit referendum was meant to be a pressure relief valve. Instead, it's blown up the whole shebang and the wreckage is everywhere.

Investors are facing potentially years of uncertainty, something which financial markets loathe but ordinary investors should welcome.

Why? The first thing is to understand that cheap stocks are the market's expression of fear. And the more fear there is, the cheaper stocks become.

brexit shares sharemarket bargains

On Monday, in the midst of the panic, Intelligent Investor either upgraded or reiterated five "buy" recommendations and listed a swag of stocks close to joining them.

Are we mad? Not at all. If you can see past the fear and focus on a business and its value rather than the emotions driving down share prices, you can turn market instability to your advantage.

Going against the crowd is hard but there are things you can do to make it easier.

First, develop a plan and write it down. If you know what stocks you want to buy and the price you're prepared to pay, overcoming that sense of foreboding as your finger hovers over the "buy" button is easier.

Second, if cash is tight, think about selling cheap stocks already in your portfolio to buy ones that are even cheaper. Don't get hung up on companies that you've owned for years. Be ruthless. It's all about price and value.

Third, don't pile in at once. As prices fall, increase your holding, ensuring a good margin of safety.

This is the only sensible antidote to volatility. Forget trying to pick the bottom of the market. That happens only by chance, not through skill.

Fourth, stick to high-quality businesses, which usually emerge from difficult periods stronger. Don't stack your portfolio with speculative stocks and always maintain sensible diversification.

Finally, remember that Australia emerged from the GFC almost unscathed, which in retrospect was a remarkable feat, and that we're on the doorstep of the world's only rapidly growing region.

We have our problems but they pale against those of almost every other developed economy.

So where should you look for bargains?

All the major banks are now close to joining our buy list (in fact, one just did). News Corp offers significant value, as does IVF provider Virtus Health. Flight Centre is also closing in on our buy price.

Of course, things may get worse before they get better. But without a clear idea of the value of a stock, second-guessing market sentiment is the only other strategy, and that never works.

So use value as your guide and price as your reason to act. And stay calm, because the time when all the money is made is when you buy, not when you sell.

RELATED STORIES

John Addis is an editor at Intelligent Investor (under AFSL 282288), owned by InvestSMART Group Limited. John founded Intelligent Investor in 1998 and is the editor-in-chief of InvestSMART, where he gets to indulge his favourite interests: the shape and form of words; investing psychology; the odd, fascinating and frustrating world of macroeconomics; and great stock opportunities. To unlock Intelligent Investor stock research and buy recommendations, take out a 15-day free membership.
Post a comment
Link to something OHWECbP7