The FTSE 100 fell below 6,000 again during Friday trading, and many investors will be dreading that unwanted sequel, stock market crash part 2. This is understandable, as the pandemic isn’t over yet. We aren’t going to rid ourselves of Covid-19 that easily. Instead, it pops up everywhere lockdowns are eased.
Some would see this as good reason to avoid the FTSE 100 altogether. I think that would be a mistake. At times like these, it makes sense to heed the words of the world’s greatest investor, Warren Buffett. He didn’t make his fortune by ducking for cover in a stock market crash. Instead, he used the dip to pick up top shares at bargain prices.
Warren Buffett’s most famous quote is as true today as it ever was: “Be fearful when others are greedy, and greedy when others are fearful.” Right now, investors are fearful. We all are, and will remain so until a vaccine is found.
I’d buy UK shares today
This makes today the ideal time to get greedy, and start buying UK shares. Yes, we could get stock market crash part 2, and that would hurt. But if you keep putting off investing in the hope that shares will be cheaper tomorrow, you will never get started.
Nobody has a reliable crystal ball. Or as Warren Buffett put it: “In the business world, the rearview mirror is always clearer than the windshield.”
At the start of this year, few saw the coronavirus stock market crash coming. At the depths of the wipeout on 23 March, few saw the subsequent recovery. You cannot hold off investing until the windshield is clearer. It never will be.
I think the best way to approach this market is to drip-feed money into UK shares, whenever you have cash at your disposal. Always keep some money on instant access, to cover three to six months of outgoings in a crisis, but look to invest your long-term wealth in a Stocks and Shares ISA, for tax-free returns. It makes sense to buy after a stock market crash, when prices are cheaper. History shows that markets always recover in the end, and investors who got greedy when others were fearful are handsomely rewarded when they do.
Buy now and forget the stock market crash
I would target companies with a clear and attractive customer proposition, steady revenues and manageable debts. My aim would be to hold them for the long term, reinvesting all dividends for growth. Warren Buffett puts it nicely, as ever: “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
A stock market crash is a great buying opportunity, because it can show you which companies are most resilient. If you like what you see, now is a good time to be bold. As Warren Buffett said: “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”