When star fund manager and long-time Fool hero Neil Woodford shouts “Fire!”, it is time to check out where the exits are. This is the man who saw how highly flammable the dotcom and banking booms were, years before they burst into flames.
Similarly, if you spot Woodford running towards a burning building, it is time to stop panicking and check out what he’s up to. That is pretty much what he has been doing in recent months, rushing into the market while others are running away. In an interview with the Daily Mail, he said concern over falling stock markets has triggered huge swings in share prices, and that is when he likes to buy.
Cry Havoc
This broadly reflects our philosophy at The Motley Fool: we actually like it when stock markets fall, as it gives us an opportunity to load up on our favourite companies at bargain prices. When the FTSE 100 dipped below 5900 this year and the news bulletins were crying “Panic!”, we ran article after article saying that now is the time to keep your cool and go shopping for cut-price shares.
Everybody loves a bargain, with the exception of private investors. They feel safer buying when markets are riding high and shares are overpriced, because it help them make the leap of faith that every share trade involves. At the Fool, we prefer to buy when markets are down, sentiment is falling, and our favourite companies are suddenly cheaper than they were.
Future Imperfect
It is a hard philosophy to put into practice. People have learned to flee trouble for sound evolutionary reasons. When the FTSE 100 slumped after Black Monday I found myself beset with lethargy, and had trouble persuading my finger to click the Buy button to top up my FTSE 100 tracker. I’m glad I did — it is up nearly 9% since then.
Even Neil Woodford doesn’t know where markets will go next. Nobody does. What you can do is look for companies that are undervalued by the market but still have attractive products and loyal customers, and offer investor treats such as generous dividend yields. Then you buy them with the aim of holding until the market discovers their true value. While you wait the share price to recover, you build your position by re-investing your dividends for growth.
Time To Buy
That is more or less what Woodford does. The top holdings on his hugely popular CF Woodford Equity Income fund include familiar FTSE 100 favourites such as pharmaceutical giants AstraZeneca and GlaxoSmithKline, Imperial Tobacco Group and British American Tobacco, BT Group and Legal & General Group. Solid, established companies with strong track records, progressive dividends and a ready-made marketplace.
These are they type of companies that Woodford is buying today. If you think it is hard to part with your money in this troubled market, you’re not alone. I feel the same way. Neil Woodford doesn’t. He thinks today is a great time to buy. And history shows that he has been right far more often than he has been wrong.