Investing during a bull run is challenging enough. But I think a stock market crash can really bring out what kind of investors we are. I’m not talking about long-term versus short-term investors. It’s always long-term for me, and I see anything else as reckless.
It’s not about strategy either. Are you looking for growth shares, expecting to take some losses but pick up the occasional big win? Do you invest for dividend income, happy to take the cash and forget the share price? I’ve gone for both strategies over the years, and both attract serious long-term investors. And a stock market crash can certainly impact both. The key pain for income investors is that dividends have been cut way back this year. And many growth investments have gone into sharp decline.
No, out on my daily walk one morning, another split between types of investors struck me. Some are interested only in the money, while others see intellectual and emotional, attachment beyond that. I’m not going to try to claim either kind is superior. In fact, if I’d been more focused just on the money over the decades, in a purely objective manner, I feel sure I’d have done better. But would I have changed the way I deal with a stock market crash?
Do I lack objectivity?
I’m definitely one who sees an investment as more than just about the money, for better or for worse. As one example, I’ll miss what I see as otherwise good investments for ethical reasons. So I won’t buy shares in British American Tobacco or Imperial Brands. I think both are seriously undervalued right now. British American is on a forecast dividend yield of 8.5%, with Imperial on 11%. And both are on very low P/E ratings. I wouldn’t fault anyone for taking advantage of that and buying the shares. But I won’t, because I don’t want to be part of that business. It’s entirely personal.
Another example is the collapse of potash miner Sirius Minerals. A 100% failure is way harder than most falls in the 2020 stock market crash, and it took a couple of thousand pounds of my money with it. And yes, losing that kind of cash was painful. But I also shared that failure personally. It was my company, you see, not just some money. Does that kind of thinking damage my ability to assess investments? I’m not sure, but I definitely find it hard knowing when to get out.
Handling a stock market crash
And does my approach make it harder for me to deal with a stock market crash? No, it really doesn’t. That’s because, over the years, I’ve come to see such things as opportunities rather than threats. Glass half empty, or half full? It’s that kind of thing. And for me, that’s maybe the most important investing difference revealed by the Covid-19 crash.
I’m not fretting over this year’s FTSE 100 losses. No, I’m thinking about all the gains to come next year, the year after, and in a decade’s time. Looking around the shares that have slumped this year, I’m seeing a lot of glasses that look like they’re nearly empty. But if I buy now, I reckon I should see them overflowing over the longer term.