Last week it felt like the world was coming to an end. The FTSE 100 was in a death spiral, falling more than 22% from last April’s all-time high of 7,122. The Chinese hard landing seemed like a crash. European banks were in a tailspin. Even the previously buoyant US was sucked into the maelstrom. Oil was plunging. Commodities collapsing. Worst of all, central bankers were running out of ammunition, and had finally lost the faith of markets (what took markets so long?).
Crazy? Moi?
In the middle of the meltdown, with the FTSE 100 plummeting to a four-year low of 5,500, I wrote: “Foolish investors never waste a crisis⊠so don’t waste this one!” I wrote another article saying: “Make this FTSE 100 crash memorable for the right reasons,” namely by searching through the rubble for great buying opportunities. My colleague Alan Oscroft was even more bullish, stating that the “FTSE 100 looks like a screaming bargain right now.”
I had to steel myself to write these articles because part of my brain was also in panic mode thinking: “What if this is actually the end of the world?” I would look pretty silly urging investors to buy shares in the midst of a full-scale market meltdown with no end. It felt like standing on the deck of the sinking Titanic enthusiastically trying to flog off shares in the White Star shipping line.
Foolish philosophy
But this is how we roll at the Fool. When share prices start plunging we disengage our instinctive flight mechanism and press the counter-instinctive fight button instead. We do this because history shows that the best time to buy stocks and shares is when markets are falling and you can pick up your favourite companies at bargain prices. That way you lock-in at lower valuations and higher yields, and reap the rewards when markets rebound, as they always do in the end, and often sooner than you think. Better still, you continue to benefit from your bargain hunting foray for years to come, providing you do the sensible thing and hold for the long term.
I told you to buy the FTSE 100 and today I can stand here all smug and proud as it recently climbed above 6,000, delivering an instant 10% return to anybody who had bought at the bottom of the market. Yay for me.
Ups and downs
Yet I shouldn’t be too smug. Stock markets aren’t out of the woods yet, far from it. If investors wake up to the danger that negative interest rates will do more harm than good, especially to bank profits, or if they suspect the oil price is about to start falling again, the FTSE 100 could slip below 5,500 in short order. That’s the chance investors always take when buying shares. Which is why it’s better to buy when markets are irrationally low rather than irrationally high.
Personally, I won’t mind if the FTSE 100 does fall again. It will give me another opportunity to urge you all to embark on another cut-price share buying spree. Will you be listening then?