How to best play the FTSE 100’s current weakness!

As I write these words, the Footsie starts with a ‘6’, Theresa May has yet to face a vote of no confidence, and we’re still heading for Brexit on March 29th.
 
But frankly, as you read these words, none of those statements might be true.
 
The other day, I heard a veteran politician – someone with thirty-plus years in Parliament – confess that they’d never lived through times quite as chaotic as these.
 
And I have to say that it seems pretty turbulent on the investing front, too.

Into the future, murkily

Here in the UK, banks, builders, and consumer stocks are all badly battered. Utility stocks are through the floor. Property-based REITs are on storied yields.

Consumer confidence is fragile, economic growth appears tepid, and movements in the Footsie are being driven by the sterling-dollar rate, rather than investment fundamentals.
 
Two and a bit years on from the referendum, markets rightly think that there really, really ought to be more clarity about where the economy is heading.
 
And at its annual conference, employers’ group the CBI lost little time in making it clear that this was its view, too.
 
Businesses like certainty and predictability – and at the moment, both commodities are in short supply.
 
So whatever happens to the withdrawal treaty in Parliament, the run-up to March 29th looks set to be turbulent. And after that? No one knows, frankly.

Wall Street is nervous

Over on Wall Street, October was the market’s worst month since 2011.

November has been terrible, too, with tech stocks further battered. The tech-heavy NASDAQ index, as I write these words, is in negative territory for the year.

Of course, tech stocks were frothy. But some of the data points that have spooked investors point to events in the real economy, rather than momentum investing.
 
Consumers, in the words of one commentator, may have reached ‘peak iPhone’. But have they also reached peak Facebook, peak Amazon, and peak everything else? Again, no one knows.
 
Throw in a Federal Reserve that seems intent on raising interest rates, Trump’s trade wars, and – yet again – undeniable political turbulence, and it’s not difficult to see why markets are nervous.  

O.P.P.O.R.T.U.N.I.T.Y.

In my view, then – at least for investors prepared to take a long-term view – such conditions spell ‘opportunity’.
 
And for ‘investors prepared to take a long-term view’, read you and I.
 
Put another way, compared to the market highs of May this year, we’re already in correction territory. The Footsie, for instance, has already fallen by more than 10%.
 
Why should you and I invest, when professionals on Wall Street and in the City are in selling mode, not buying mode? Simple: in large part, they’re not investors with a long-term time horizon, but fund managers focused on their next quarterly comparison with their investment benchmark.

Put another way, we’re long-term investors, and they’re not.

Buy the market, or buy the shares?

15 years ago, I suspect I’d have reacted by buying index trackers, which is how I played the market lows of 2003, and the last gasps of the dotcom crash.
 
Today, on the other hand, there are some attractive parallels with 2008, and the dip of 2016.
 
Put another way, real companies – companies that you might previously have dismissed as unattainable expensive – are now starting to look temptingly investable.
 
There are still plenty of lofty valuations out there, of course. But a market that was looking expensive is now looking rather more affordable.
 
You can wait for it to get much, much cheaper, of course. But such looked-for entry points have an unhappy knack of never quite materialising. And by the time you realise that you’ve missed the market’s low point, share prices are bouncing back. The bargains have gone.

Build your shopping list

How best, then, to play this opportunity? My take, for what it’s worth:

• Economic weakness and unsettled politics are likely to be with us for some time. There’s no immediate hurry to get into the markets right now, in my opinion.
•  You’ll need free cash to play this opportunity. Start accumulating it right now – retained dividends, pruned holdings, new cash from other sources.
•  Know what it is that you want buy. Do your research now, rather than in a hurry, should markets present you with an un-missable entry point.