Don’t you just love it when a good market crash comes along? What, you don’t like them? Well, if you’re in the net investment phase of your life, then you should do, because they give us the chance to buy great shares at silly low prices.
I remember when I started out, the old hands would tell me that nobody ever learns and irrational crashes keep happening. Then the dotcom boom and bust came along, I experienced my first crash, and I thought surely the lesson would be learned.
But no, a few years later along came the banking crash. Sure, there were some bad economics there and our banking system looked very shaky — but why oh why did everyone sell off all their shares in perfectly good companies at such stupidly low prices? I honestly have no idea, but a FTSE 100 at under 4,000 in early 2009 was just madness.
Great opportunities!
I didn’t think we’d get another buying opportunity like that for a long time, but we’re facing that delicious prospect right now. And the underlying reasons are less solid than last time — very cheap oil and commodities thanks to a downturn in Chinese demand. In the financial crash, everyone needed a stable banking system and just about all companies were directly affected when credit dried up. But who needs expensive oil and iron? Most companies want exactly the opposite, like engineering, manufacturing and building firms.
That’s part of the reason companies like BAE Systems are cheap now at 505p and offering 4% dividends. And what about construction firms like Galliford Try on a P/E of only 11.5 after years of rising earnings and with even more forecast — and 5.4% dividends on on top of that?
Our housebuilders have been flying too. First they enjoyed cheap land in the crash and stocked up on it, and now they’re benefiting from cheap materials and energy. Yet they’re mostly still on low P/E multiples, have good growth forecasts, and are handing out lots of dividend cash. There’s a forecast 4.7% from Bovis Homes this year, from shares on a P/E of only 8, with 5.4% from Persimmon on a P/E of 11.5.
Banking pain again
And the banks have been hit badly again too. It’s not the price of oil doing it, but exposure to China that’s a big problem for a couple of them. But I don’t see much wrong with Barclays on a P/E of 7.2 and with two years of double-digit growth on the cards, or Lloyds Banking Group offering a 5.1% dividend this year from a P/E of 8.5.
Friends are asking me if I’m scared about the falling FTSE, and telling me that investing in shares is just too risky while sucking their teeth and shaking their heads. But I’m eyeing up another chunk of pension cash that I’m planning to liberate and stick into depressed high-yielding shares.
We’re in very silly times right now and those with a bit of common sense should be able to do very nicely.