Sometimes in life, a lump sum of cash suddenly comes our way. Whether it was a bonus at work, a refund for cancelled holiday plans, or a Premium Bonds win, if I suddenly received £1,000 right now I would happily invest it in the stock market. Here is how I would find UK shares to buy now with my £1,000.
Focus on hunting for shares
With thousands of companies offering their shares to investors, I would need to spend some time hunting for the ones that felt right for me. A good business does not always make for a rewarding investment. If the shares are overpriced, for example, I could end up losing money even if the company increases its profits in coming years.
So I would look for two things. First, I would hunt for a business that I felt had a sustainable competitive advantage. That could be anything from the sort of proprietary manufacturing technology used at Victrex to a unique distribution network like the sort owned by Jersey Electricity.
Next, I would look at the company’s current valuation. After all, like Warren Buffett, I am looking for a great company – but at a good price. So while I like the competitive advantage of medical robotics maker Intuitive Surgical, its share price of 60 times earnings does not seem like good value to me. I feel the same way about animal supplement maker Dechra Pharmaceuticals and its price-to-earnings ratio of 76.
UK shares to buy now with £1,000
Fortunately, I do think some companies with competitive moats are currently available for me to buy at an attractive valuation.
For example, in the past few months I have bought shares in consumer goods giant Unilever, leisurewear retailer JD Sports, and online commerce specialist boohoo.
I see all three as having strong business prospects and consider their current share prices attractive for my portfolio. But what if I am wrong? Cost inflation could hurt profits at both Unilever and boohoo, for example. Any fall in consumer spending in the US could reduce sales at JD.
Anyone can make a mistake, especially when trying to know how well a company will do in future – even company management. To reduce the impact of a misstep on my investment returns, I diversify my portfolio across different companies and business areas. With £1,000, I would be tempted to split the lump sum across four or five different shares. That might push up my trading costs. But I also think it would help reduce my risk.
Making a move
With a lump sum of £1,000 I could make some investments which hopefully offer me attractive returns for years to come.
My success will largely depend on me taking the effort to find the right sorts of companies and valuations to put my money to work. With the amount of information available to private investors now, I think doing that research to find appealing shares can be easier than ever. Based on that, I could choose some UK shares to buy now with my £1,000.
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Christopher Ruane owns shares in JD Sports, Unilever and boohoo group. The Motley Fool UK has recommended Unilever, Victrex, and boohoo group. 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.
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