Are we facing a second stock market crash? As I write, the FTSE 100 has fallen to around 5,858, as the recovery runs out of steam. The world is worrying about a second wave of Covid-19 infections. Investors are understandably downbeat.
Let’s not be too gloomy. If you’re investing in FTSE 100 shares, you shouldn’t be looking to make a profit this week, or even this year. You should be investing for a minimum of five years, and preferably much, much longer. Over such a lengthy timescale, the world should see off the pandemic, and recover from this year’s short sharp shock.
History shows that investors who buy shares in the middle of a stock market crash reap the rewards over the longer run. This is a great opportunity to buy top FTSE shares at bargain prices, as more short-sighted investors hold back. Your aim should be to hold onto them for the long run, to allow markets to recover and your dividends to compound.
FTSE 100 bargains galore
Right now, I’m scouring the market for FTSE 100 shares, and there are plenty out there. Personally, I’d not just target companies whose share prices have fallen in the stock market crash but, specifically, those whose underlying businesses are fundamentally stable.
For example, FTSE 100 housebuilders, such as Barratt Developments and Persimmon, should still see plenty of demand. The property shortage remains, interest rates are at record lows, the Help to Buy scheme is being extended. Plus there’s a stamp duty holiday.
I would also look for companies such as Reckitt Benckiser Group and Unilever that sell everyday household goods people still need, even in a downturn. Or defensive dividend stocks such as National Grid and Pennon Group.
Cigarette makers British American Tobacco and Imperial Brands Group, pharmaceutical giants AstraZeneca and GlaxoSmithKline, international miners BHP Group and Rio Tinto, and software company Sage Group may all tempt.
Stock market crash caution
I don’t think you need to take outsized risks to profit from the stock market crash. If we get further lockdowns, airlines, such as easyJet and Ryanair, or other travel firms, such as cruise operator Carnival and InterContinental Hotels Group, could be a risk too far.
The banks have been hammered by the stock market crash. Today, HSBC Holdings is down another 6.5% after warning of Covid-related bad debt charges. Its share price has halved in a year. This could be an amazing buying opportunity, or a risky value trap. Nobody knows for sure. Ultimately, it’s your call.
You can limit your exposure to a second stock market crash by feeding regular amounts into the market, rather than via a big lump sum. If the market crashes again, simply buy more stocks at the lower price.
As always, hold on for the long term. The FTSE 100 will recover. But it may take time.