Stock market

Why would I trade UK shares to try to build wealth?

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Many people dream of building substantial wealth over the long term. From paying school fees to buying your dream home, it can help!

But finding a way to fulfill that desire can be difficult. I think buying bargain UK shares could possibly be what I’m looking for.

How Shares Can Build Wealth

There are two main ways in which owning shares can help me build wealth. One is to increase the share price and the other is to receive dividends.

Although this is not guaranteed either. In fact, the share price may fall. So choosing the right stocks is crucial for long-term success in investing.

Finding the Right Shares to Buy

So how do I try to do this? If I were to sum up in one word what I would most look for when looking to buy UK shares for my ISA, it would be Value.

Value does not necessarily mean a lower share price, although it can. Rather, it means paying less than what something is worth.

Ideally, I would pay significantly less than that, because that would increase what Warren Buffett calls the margin of safety.

But in looking for value, I would also look for lasting quality. So my focus will be on finding companies with a competitive advantage (or multiple advantages) within an industry that I expect to have strong consumer demand over the long term.

A share I have my eye on.

As an example, consider Unilever (LSE: ULVR). The company’s focus on everyday products like bleach and washing-up liquid means its potential market is huge and likely to stay that way. In fact, every day, several billion consumers use Unilever products.

Like building a portfolio of premium brands CIF, the company is able to differentiate its offering from competitors and therefore charge a price premium. This means that the company is able to earn enough profit that can be used for its quarterly dividend.

Despite this, the UK’s share has fallen by 8% over the past five years.

I see risks, such as inflation driving up the cost of everything from chemical ingredients to packaging materials. This can hurt the profit margin of the company.

In the long term though, I think Unilever is the UK part that can help me build wealth through a combination of potential value appreciation and profitability.

bargaining

But while I have my eye on Unilever, I don’t own it, at least for now. Its price-to-earnings ratio of 19 strikes me as reasonable, but not exactly a bargain.

Like Buffett, I would ideally prefer to wait for what I see as screaming bargains, rather than investing in many companies that I think have some attractive value.


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