You never quite know when the next bull market will appear. But you can plan for it.
Investors that buy high-quality ASX shares at cheap prices, investors stand to benefit greatly when the bull comes charging in.
It is for this reason that I recently snapped up Endeavour Group Ltd (ASX: EDV), ResMed Inc (ASX: RMD), and Treasury Wine Estates Ltd (ASX: TWE) shares while they were trading at 52-week lows.
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Buying cheap ASX shares with capital growth potential
One of the main reasons to buy cheap ASX shares is their potential to deliver high returns.
After all, buying an asset at a low price provides more scope for capital growth, which equates to greater returns for an investor.
You only need to look at shares that were beaten down during the pandemic to see this.
If you had bought Webjet Limited (ASX: WEB) shares in late 2020, several months after its shares had bottomed, you would have doubled your money today. It's a similar story for REA Group Ltd (ASX: REA) shares, which have doubled since April 2020.
And while pandemics are thankfully rare events, selloffs are not.
Quite often you will find high-quality businesses sold off because they are facing challenging short-term headwinds that could mean their financial performances disappoint. The market's lack of patience could be the time to pounce and Warren Buffett agrees. He once quipped:
The stock market is a device for transferring money from the impatient to the patient.
Don't buy all shares with low prices
It is worth remembering that not all cheap ASX shares are good value. They could be cheap for a reason, such as having a precarious balance sheet, facing structural challenges, or lacking an economic moat.
In light of this, it is important to focus on the quality of any company before buying it. Investors ought to analyse a company's industry position, strategy, and financial position through its latest investor updates or annual reports.
Failure to do this could mean you end up with a portfolio filled with unattractive companies that may not be able to recover even when the bull market arrives.
