£5,000 to invest? Here’s how I’d hunt the best UK shares to double my money
The best UK shares to buy can appear in the strangest of places. They’re not necessarily the companies with the biggest balance sheets, greatest growth potential, or cheapest prices. Large enterprises can be slow to adapt to a changing environment. Explosive growth often comes with an absurd price tag. And even discounted stocks can be undervalued for very good reasons.
Obviously, this creates a lot of challenges for stock pickers searching for the best buying opportunities. So how exactly does an investor track down top-notch enterprises that can take a £5,000 investment and double it?
There are several methods, so let’s start exploring.
1. Capitalising on a turnaround
Turnaround investing is fairly straightforward on paper. Investors find struggling businesses that have started preparations for a turnaround plan. This could involve bringing in new leadership, restructuring the balance sheet, or shaking up operations to reduce costs and improve efficiency.
One of the most recent examples of this would be Rolls-Royce. After being decimated by the pandemic, drastic action was needed to save the engineering giant from bankruptcy. What followed was billions of pounds of non-core assets being sold, thousands of job cuts, and a new CEO.
But investors who saw the potential and bought shares have more than doubled their money since the start of 2023!
Buying turnaround shares can be highly lucrative in a relatively short space of time. However, as investing strategies go, it carries a lot of risks. Even if the recovery plan succeeds and a company avoids bankruptcy, in most cases the firm will emerge as a shadow of its former self.
In other words, these types of shares may take years or even decades to come close to trading at pre-turnaround pricing.
2. Buying shares during a recovery
There’s no such thing as risk-free investing. Even when buying government bonds, there’s a risk, however unlikely, of a potential default. And when the stock market is in the middle of a recovery, volatility risk is only amplified.
Yet this volatility is precisely what creates opportunity. Some of the worst investment decisions tend to be made when investors are generally panicking, or have a negative outlook. That’s why during a stock market crash or correction, stock prices of even the stronger businesses end up getting sold off.
However, a lot of money can be unlocked for those able to identify this illogical behaviour surrounding healthy businesses. One recent example from my portfolio is Games Workshop. Like many UK growth shares, the tabletop miniatures company was sold off during last year’s correction.
Personally, I thought this reaction was a bit overkill, with these shares falling significantly below their intrinsic value. So far, it seems my hunch was right, since the stock has doubled since September 2022.
The bottom line
Investing passively through an index fund has historically taken around a decade to double an investment, on average. While there’s undoubtedly more risk, stock picking provides a path to far more rapid wealth creation. There are never any guarantees of success. But by taking a disciplined approach, investors can mitigate risk and potentially propel their portfolios to new heights.
The post £5,000 to invest? Here’s how I’d hunt the best UK shares to double my money appeared first on The Motley Fool UK.
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More reading
- How to invest £350 monthly in shares to target £133,000 annual passive income!
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- £10k invested in FTSE 100 shares in the crash would be worth this much now
- Here’s how I’d invest £10,000 to target a four-figure passive income
- No savings? I’d use the Warren Buffett method to try and get rich
Zaven Boyrazian has positions in Games Workshop Group Plc. The Motley Fool UK has recommended Games Workshop Group 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.
