Stock Market Volatility: Are Any Shares Truly Safe?

The stock market has experienced significant fluctuations in 2023, with major indices like the FTSE 100 reaching new all-time highs while also grappling with notable volatility. This has raised questions among investors about the safety of shares during turbulent times, particularly as incidents of market instability have surfaced in both the United States and the UK.

Understanding Market Volatility

In practical terms, no share is entirely safe from losing its market value. While certain shares can be redeemed for a specified cash amount, such instances are rare among large publicly listed companies. Even shares that may temporarily decline in value can still present opportunities for long-term investors.

When an investor purchases shares and their value subsequently decreases, they still retain ownership of those shares. This decline may be reflected as a paper loss until the shares are sold. For many long-term investors, fluctuations in share prices are less concerning, especially if there is no immediate intention to sell.

Moreover, a drop in share price often indicates a shift in investor sentiment rather than a fundamental change in the company’s underlying value. For example, investor sentiment may fluctuate due to market conditions, economic data, or geopolitical factors, but the intrinsic value of a well-managed company may remain stable.

Learning from Successful Investors

Investor Warren Buffett characterizes the stock market as “Mr. Market,” a person who offers to buy or sell shares at varying prices each day, without any obligation to act. This perspective encourages investors to take advantage of market volatility by purchasing quality shares when prices are low and holding them for the long term.

A case in point is M&G Plc, a prominent asset manager listed on the London Stock Exchange. During the market crash in March 2020, M&G’s shares fell sharply. Since then, they have rebounded significantly, rising by 144%. Additionally, the current yield for M&G stands at an attractive 7.5%, meaning that investors who bought shares during the market dip have the potential to earn substantial returns.

Despite this recovery, it is important to recognize that no investment is without risk. M&G continues to face challenges, including the possibility of increased withdrawals from its funds, which could impact profitability, particularly in volatile markets.

Investors like Buffett suggest that when market conditions induce fear, it may be the right time to seek out strong companies with appealing valuations. This approach can lead to rewarding investment opportunities over time.

For those considering investments, insights from experts such as Mark Rogers, who oversees the Motley Fool UK Share Advisor, can be invaluable. His recommendations often highlight standout stocks worth considering during market fluctuations.

In conclusion, while no share is entirely safe from declines, a strategic approach focusing on quality companies and a long-term investment horizon can help navigate periods of volatility. Investors should remain informed and consider their options carefully, especially in times of uncertainty.