Here's why I can invest £800 in the stock market now to start building wealth

It's been a busy week for the stock market. Most of the world's major indices saw a sharp fall as the week began, since then, most have recovered.

If I had £800 to spare, here's why I'd happily put it in blue-chip shares today, regardless of the possibility of market turmoil (indeed, I've been buying shares this week!)

Split price and value

Taking a step back, what happens when the stock market crashes? Together, prices are falling. Some may go up, while others go down but, overall there is a decline.

What does this show? Sometimes it is caused by a decrease in the real value of the company. For example, some bad economic news may mean that a business may earn less in the future than it did in the past – and therefore be less valuable in itself.

But in some cases, the price goes down (or up) in a way that doesn't match its business prospects. That would give me an opportunity to buy a high quality business for less than what I think it's worth.

Putting theory into practice

As an example, consider a stock I bought during Monday's sharp market decline, ie JD Sports (LSE: JD).

JD Sports' share price has certainly fluctuated in the past. Indeed, it is 22% lower now than at the beginning of the year.

Part of that depends on what investors call “which is basic” (as opposed to “feeling“). The business issued a profit warning in January and subsequent announcements of weak trading from companies such as Nike have fueled concerns that a stronger economy could squeeze investment in luxury goods.

Against that, I see a lot to like about JD. The demand for its product is strong. It has a global presence, economies of scale, a large customer base and a carefully crafted marketing message that has worked well for years.

Its current price-to-earnings ratio of 10 looks cheap to me. I can see that earnings may drop, due to lower consumer spending or the cost of JD's ambitious store opening plan. In the long run however, I believe the JD Sports share price should be higher than it is now.

Building wealth over the long term

There is a big lesson for me in JD's share price movement. The stock market as a whole can go down just as suddenly as it can go up quickly.

But I don't buy the market. I invest in individual stocks. So I want to look at some examples where a company that I think has strong long-term commercial prospects is trading significantly higher than I think it should be.

I can get that judgment wrong, of course, which is why I always keep my portfolio diversified. £800 is enough for me to buy from several different blue-chip companies at what I think are cheap prices, as I did this week in the case of JD Sports.

I hope that doing so can help me build wealth in the long run. If I see what I think is a bargain today, why wait?