'Dip your toe back in': Expert reveals why he's buying ASX shares now

Not sure what's going to happen with the stock market for the rest of this year? That doesn't matter, says one fund manager.

A man in his 30s holds his laptop and operates it with his other hand as he has a look of pleasant surprise on his face as though he is learning something new or finding hidden value in something on the screen.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Everyone is bearish but one expert has revealed he's personally started buying ASX shares.

Montgomery Investment Management chief investment officer Roger Montgomery is detecting wholesale pessimism in the industry at the moment.

"Talking to brokers, other fund managers and economists, I don't find many people who are very bullish at all. In fact, most of them expect another leg lower in the stock market," he said on a Montgomery vlog.

"Bearishness pervades almost every corner of the market at the moment."

But to Montgomery, such unanimous despair means the opposite.

"For me, that starts to become optimistic because if everyone's already bearish, there's not many others left to become bearish," he said.

"Those who are bearish have already sold, there's not many people left to sell, and so it may be that prices are now on the cusp of a bounce."

What can happen from here?

Putting aside sentiment, Montgomery analysed what could logically happen to the economy and stock markets from here.

He explored two different scenarios that could come true.

The first option is that interest rates stabilise without sending the economy into strife.

"If rates stop rising, and if economies don't go into a recession, and we don't get a financial crisis, then there's a very real possibility that the indiscriminate selling that we've witnessed recently becomes something more discerning," he said.

"And buyers return to the market to look for downtrodden, high-quality growth companies."

The second possibility is that by the time rate hikes are done, the unemployment queues have lengthened.

"If that happened, then we would get a much more significant decline in economic growth, and then the possibility of a recession goes up."

I'm buying ASX shares. Are you?

Montgomery thinks the first scenario is much more likely, as he doesn't foresee a recession or financial crisis hitting Australia.

"Then we're in a situation where we've had indiscriminate selling, pushing PE ratios very, very low, and that of course means the possibility of better returns in the future," he said.

"So if indiscriminate selling gives way to more discerning buying, we'll get an expansion of PEs again, and that will increase the return that would normally be available just from the earnings growth."

Montgomery said that he's now started to buy for his personal portfolio.

"My suggestion now is to start dipping your toe back in."

Montgomery doesn't pretend to know whether stock prices will head lower, higher or flatline for the rest of the year.

But that doesn't matter for a long-term investor.

"It could be that the rest of my peers in the market are absolutely correct and we get another leg down. I just don't know," he said.

"But I do know that there are some mouthwatering opportunities already appearing, and rather than try and predict what prices are going to do next, I'd rather start filling my portfolio with wonderful businesses at rational prices."

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Investing Strategies

Man holding a calculator with Australian dollar notes, symbolising dividends.
Bank Shares

Here's the CBA dividend forecast through to 2026

Where next for this banking giant's dividends?

Read more »

A little girl holds on to her piggy bank, giving it a really big hug.
Dividend Investing

3 of the safest ASX 200 dividend shares in Australia right now

I think these 3 shares pay the safest income you can find on the ASX

Read more »

Happy man working on his laptop.
Growth Shares

1 ASX growth stock down 40% to buy right now

Goldman Sachs thinks this beaten down stock could be great value.

Read more »

A woman with black afro hair and wearing a white t-shirt shrugs and purses her lips
Cheap Shares

Are these top ASX shares dirt cheap and must-buys right now?

Is the market undervaluing these and giving you a buying opportunity?

Read more »

A happy older couple relax in a hammock together as they think about enjoying life with a passive income stream.
Investing Strategies

I'd aim to turn a $20,000 savings account into $25,400 of passive income

It doesn't matter if you don't have a pile of cash to start investing. The important thing is to start.

Read more »

A man closesly watch a clock, indicating a delay or timing issue on an ASX share price movement
Dividend Investing

25 ASX 200 shares with ex-dividend dates next week

There are 25 ASX 200 shares scheduled to go 'ex-div' next week.

Read more »

man doing stocktake at supermarket
Dividend Investing

Guess which ASX 200 stock is predicted to pay an 8% dividend yield in 2025

It could be rewarding to own this business.

Read more »

A woman has a thoughtful look on her face as she studies a fan of Australian 20 dollar bills she is holding on one hand while he rest her other hand on her chin in thought.
Dividend Investing

Want big income? Buy these high-yield ASX dividend shares

Analysts think these income options are in the buy zone right now.

Read more »