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Buying UK shares can be a difficult task due to the volatile state of the stock market. After all, there’s nothing more frustrating than watching a stock’s price drop after completing a purchase. And scared investors often make hasty decisions to cut losses, which can backfire.
So how can I avoid these mistakes if I’m looking to invest a £1,000 lump sum today? let’s take a closer look.
Loss aversion is a trap
In the short term, the stock market can be quite chaotic. Shares appear to move in irregular directions. And just when investor nervousness is rising, sudden downside changes can appear out of nowhere.
For novice investors, this is the perfect breeding ground for panic and disappointment. And after seeing a stock fall by 5% or even 10% in a single day, there is a strong urge to hit the ‘sell’ button as quickly as possible to minimize any potential losses.
Loss aversion is a powerful emotional response that is very difficult to ignore. I was definitely guilty of panic selling at the beginning of my investing journey. And when things start falling apart, it can easily seem like a smart move. But often, selling prematurely will prove to be a serious mistake.
Volatility is a natural part of the investing process. Investors, especially those interested in growth stocks, should get into the habit of ignoring short-term fluctuations and focus on the underlying business.
In the long run, it is the latter that drives up stock prices. And with over a decade of experience, I now know that volatility, while frustrating, is the perfect time to find great opportunities.
don’t be an ostrich
Instability is not a reason to panic. But that doesn’t mean I can bury my head in the sand. If investors are busy selling a stock, I need to know why. This may just be undue nervousness and anxiety. But panic usually stems from uncertainty about a company’s financial condition or operations.
The question is whether this problem is a short-term issue or whether the company has become fundamentally compromised. If it’s the latter, my investment thesis may be invalid, and action may be necessary.
However, suppose everyone is bending their knees for an issue that can easily be resolved within a few months or quarters? In that case, an opportunity would have arisen for me to increase my investment at an even better price.
£1,000 investment in 2023
All that said, the best way to invest lump sum today is the same way I would invest regardless of volatility. In my opinion, investors should take time to find the best British businesses London Stock Exchange And focus on the long term.
The research process may take time. And even high-quality stocks can fall victim to rapid price fluctuations. But for those who take a disciplined approach, even a volatile stock market can help build tremendous wealth over the long term.
The post How I’d Invest £1k in UK Shares Right Now appeared first on The Motley Fool UK.
The views expressed on the companies mentioned in this article are those of the author 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 wide variety of insights can make us better investors.
Motley Fool UK 2023