Without a doubt, the market has been extremely turbulent over the past couple of months. If you hold a portfolio of FTSE 100 stocks, you have probably seen the value of your holdings fall recently.
If this is the case, you are not alone. Since the start of 2020, the FTSE 100 has dropped by roughly 25%, as uncertainty surrounding the coronavirus outbreak weighs heavily on share prices. No one is sure just how badly the crisis will impact business or the global economy.
Everyone is questioning whether the market will drop more. This is understandable as, depending on your investing time-frame, it might lead you to change course: for those thinking of cashing out soon, is now the time to sell? And for those still in the wealth accumulation stage, is now a good time to go large and buy more stocks?
Let’s have a look at what this might mean for share prices.
Will FTSE 100 stocks fall lower?
Have you ever bought a brand new car, driven off the forecourt and wondered how much its value had dropped?
Investors getting ready to hit the buy button will have this feeling now. This is only natural, as no one wants to buy something only to realise that if they waited, they could have owned it at a much lower price.
Unlike cars though, over time the market has tended to appreciate in value.
This might not seem entirely comforting to those who have recently purchased stocks only to see the value plunge further. However, I hope that in years to come, this will only seem like a blip on the FTSE 100 chart.
Timing the market, or time in the market?
Due to the impact that coronavirus will have on business, I think the FTSE 100 will fall to a lower value. But I do not know this. No one does.
And that’s why time in the market is more important than timing the market.
If we wait and the market does drop further, we will be questioning if it will go even lower. The risk then becomes that we will be sitting here and waiting, while stock prices increase.
In the past, Warren Buffett has advised investors to imagine they have just bought a farm. After purchasing the land, you would not get a value put on it again a week or so later. You would value the farm differently.
Likewise, buying stocks is very similar. After deciding to purchase them, you should look at the fundamentals of the business. Is it being managed by competent people? Could profit margins be improved? Is the business protected from rival companies?
As Warren Buffett has also said: “Price is what you pay, value is what you get.”
It is good news if you can buy stocks in great FTSE 100 companies for 25% less than they were trading at three months ago. So do not worry if you missed out on buying them 26% lower than they were three months ago! Just remember that you are investing for the long term and that you are only concerned about the value of your holding in a few decades’ time.