The FTSE 100 Is Having A Sale, Who’s Buying?

In the last three months investors have been dumping stocks, but the FTSE 100 (INDEXFTSE:UKX) is always on the up.

Mark Stones

Mark Stones (TMFMumbojumbones) joined The Motley Fool in 2014 and initially worked as a writer for Fool.co.uk, before joining the Fool’s analyst programme. Mark earned a BA in English from Loughborough University. Although he spends more time reading annual reports than Russian literature these days, he still appreciates a novelist’s antipathy toward the accepted view, which is a useful attitude when trying to sniff out hidden gems on the stock market. His approach to investing has been largely influenced by the principles of Warren Buffett and Peter Lynch. He also takes a special interest in the work of healthcare companies. Outside of investing, Mark plays guitar, enjoys good writing and has a guilty passion for combat sports.

Published 1 April, 2014 5:05 pm BST

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

The FTSE 100 (FTSEINDICES: ^FTSE) has just suffered its first quarterly fall since June. The index is down 150 points, or 2.2%, since the beginning of January. It’s a far cry from the same period last year when the Footsie added 486 points.

Heady days.

But if last year’s performance had been equalled, or even surpassed, I would’ve said the same thing I’ll say now: don’t bank on it lasting. It’s been a dreadful beginning to 2014, with a string of weak data from China along with increasing tension between Russia and the West weighing on investor sentiment, but as far as I’m concerned this is entirely irrational.

The market is always irrational, in fact.

Markets are directed by humans. Most of us are irrational, prone to biases and likely to follow crowds. We panic; whereas the best investor will maintain bearings, and take advantage of the ensuing buying opportunity.

“Take this wonderful company from me, I don’t want it — 20% off!”

“Gladly, and thank you.”

You don’t need a PhD to navigate a sale in a department store, and you certainly don’t need one to invest in the stock market.

If you take the last 10 years, performance during this most recent quarter might look bad, but of the other two years when the market went down in the first quarter, in 2008 and 2009, the market declined a further 163 points in ’08, while in ’09 the market gained 315 points.

What we can determine is that quarter-on-quarter stocks just as likely to falter as it is to rally. It’s a coin toss, basically. Okay, perhaps that sample data is slightly crude. But during the same timespan the FTSE 100 gained 52% overall. Since its inception in 1984 the index has surged 506%.

What’s more, you could potentially do better. All you need to do is check your emotions at the door and get a grasp of the basics.

There’s no ‘best’ time to invest. Rather, regularly investing in solid companies is one strategy, but just make sure you know exactly what you’re buying into. I have no idea, say, how ARM’s (LSE:ARM) microprocessors work, but I know they’re one of the world’s most used products, found in 99% of the world’s smartphones and tablets.

In the last decade shares in ARM have surged 700%.

Now, this is by no means a buying recommendation. Valued at 42 times earnings, the shares look expensive, but imagine if you’d managed you’d managed to buy in at less than £1 in 2004.