Should I buy stocks or look to conserve cash right now?
Is now a good time to buy stocks? With artificial intelligence (AI) and conflict in the Middle East creating volatility in the stock market, it feels like a risky time to be investing.
Actually, itâs often times like these when investors can find the best opportunities. When thereâs uncertainty around and the future is unclear, the best investors are decisive.
Warren Buffett
As with most things to do with investing, something Warren Buffett said once sums up the situation pretty nicely: âThe future is never clear â you pay a very high price in the stock market for a cheery consensus. Uncertainty is actually the friend of the buyer of long-term values.â
Heâs right, of course. Share prices arenât cheap when investors are all feeling good about businesses and their future prospects â itâs when that changes that bargains appear.
One of the best examples from the FTSE 100 is Rolls-Royce. During the pandemic, the company was losing money and it was taking on debt to avoid going into bankruptcy.
Fast-forward to today and those concerns have gone away â for now, at least. But the cost of waiting for a more positive outlook is missing out on a return of almost 2,000%.
Investors shouldnât just buy every falling stock. They should though, be looking for situations where short-term issues are distracting the stock market from a firmâs long-term strengths.
Private equity
One of the worst industries for this is private equity, where firms raise cash from external investors and look to deliver a return on it in the future. But that’s been hard recently.
Companies are struggling to exit their investments because valuations are unusually low. As a result, investors are staying away at exactly the time they should be excited.
One operation that doesn’t have this problem though is 3i (LSE:III). The FTSE 100 private equity firm invested its own capital, rather than looking for outside investors.
That means it can invest on its own timeline, buying and selling when it sees opportunities. And in a market where other companies can’t do this, that’s a huge advantage.
Another attraction of the business is it gives investors access to private companies they can’t buy otherwise. In 3i’s case, the main one is Action, a fast-growing European retailer.
Action is a big part of the FTSE 100 firm’s portfolio and that kind of concentration brings risk. But I think that’s something investors should look to manage in their own portfolios.
Time to buy?
Investors should never just ignore risks. But I do think that concerns around AI and oil prices mean that looking for buying opportunities right now is a good idea.
Being able to take advantage of uncertainty is a key reason why 3i shares are up over 600% in the last 10 years. And its unique approach isn’t going to change any time soon.
I think it’s a great stock for investors to consider buying at a time like this. Private equity might be struggling, but this company isn’t like the others in the industry.
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Stephen Wright has positions in 3i Group Plc. The Motley Fool UK has recommended Rolls-Royce Plc. 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.
