This stock market crash does not alter my belief that regularly investing in quality stocks builds wealth. Sometimes stocks may be performing poorly, but in the long run, UK stocks outperform gilts, corporate bonds and cash.
With the stock market crashing, it may be challenging to have faith in a regular investment plan. After all, previously-made investments may have lost money. Prices may fall further, and new investments might immediately start to make losses.
But if investments are curtailed now, because of the crash, then when do they start again? Once the bottom is in place? Buying dips sounds appealing, but timing the market is challenging, and outperforming a regular investment plan is not guaranteed.
There will always be bear markets as there will be bull ones. Regularly investing in a bull market means buying at higher and higher prices. At some point, the market will face a correction, and prices will decline. In a bear market, purchases get cheaper and cheaper. At some point, the market will go back up.
I really cannot make a case for regularly investing in the good times then abruptly stopping when prices are falling.
Crashing out
If regular investing doesn’t appeal at the moment, here is a tip I once heard. Continue to transfer cash to your Stocks and Shares ISA or equivalent, but don’t buy anything. Instead, think of those stocks that you wish you had purchased a long time ago. Those that, until February, really went up a lot.
Set an order to buy them at a significant discount to the price they are at now. If the market crashes further, stocks might get bought at previously implausible discounts. This approach may help avoid the temptation to sell stocks and lock in any losses for good, as there is some benefit to further declines.
Chasing the market
Some industries and sectors have performed worse than others in this crash. Oil and gas stocks have been decimated as demand for fuel has shrunk. Shares in travel and leisure companies have slumped as travel restrictions, both enforced and voluntary, start to bite. Banks stocks are struggling as central banks slash interest rates, making profits hard to come by.
Some stocks have not lost as much as others. Food retailers have held up reasonably well, far better than food wholesalers, and so have utilities. It may be tempting to buy stocks like J Sainsbury because they have not fallen as much as the overall market, but that would be short-term thinking. Food retailers are benefiting for now from having their shelves cleared by panic-buying.
Panic-buying will stop eventually, so chasing short-term winners is not something I recommend. Stocks that have long-term potential, beyond any temporary boost to revenues, are where you want to be.
If I have to focus on one stock to buy right now, it would be Tristel. This company manufactures disinfectant products for commercial and domestic use. Its share price has fallen just 3% since I talked about it in February, even though the stock market crashed. However, the business has good long-term prospects and will also benefit from the heightened awareness of hygiene once this crisis has abated.