No matter how many times I tell myself that a stock market crash is the perfect time to buy shares, I still struggle to screw up the necessary courage. It’s human nature to want to flee a disaster zone, rather than march boldly towards it. But now’s the time to get tough on yourself. Today’s a good time to buy shares. Tomorrow may be even better.
To buy or not to buy?
As I write this, global stock markets have stabilised. The FTSE 100 has just crept over the 6,000 barrier. That still leaves it more than 15% below its all-time-high of just over 7,100, achieved in April last year. So despite recent stabilisation, a great buying opportunity is still there.
You may get an even better one shortly, if Christian Mueller-Glissmann at Goldman Sachs is correct. He has warned that the China-fuelled global stock market meltdown is likely to get worse, and if it does, that will be the time to buy equities. Recent drops have help by reducing company valuations, giving investors a buffer, and of course greater scope for recovery.
Time to go shopping
Mueller-Glissmann may be right. But he may be wrong. Even Goldman Sachs can’t see the future. Only God can do that, and he’s too busy to offer stock tips. Share prices could fall further, or they could surprise everybody and recover. Or they could do both. Markets never move in a straight line.
All we know for sure is that today, shares are cheaper than they were. Think of it as the January sales. Store clearance sales trigger a rush of buyers looking for a bargain, while the opposite happens in stock markets. People see listed companies selling at fat discounts and respond by closing their wallets. Traditional shopper psychology is completely reversed, with people only starting to shop again after prices have risen.Â
Top tips
There are bargains galore right now if you can screw up your courage. Lloyds Banking Group, for example, is down 20% in the last six months, yet I see this as a tempting buy for long-term dividend investors. Barclays is down nearly 30% over the same period. Tempted?
Not every share price plunge is a buying opportunity. Personally, I would steer clear of mining giants Anglo American, BHP Billiton and Rio Tinto, as the commodity sector is vulnerable to further falls. Braver investors may see this as a once-in-a-lifetime investment opportunity instead. At today’s rock bottom valuations, they may have a point.Â
You may prefer a company that has thrived in the market rout, such as dividend heroes British American Tobacco (up 3% in the last month), engineering giant BAE Systems (up 6%) and National Grid (up 4%). By standing aloof from the current meltdown, they’ve shown their resilience.
If you can keep your head while all about are losing theirs, you’ll be buying shares today. You may also be keeping some ammunition dry, to buy more if markets fall further.