Since the March stock market crash, investors globally have been wondering if another stock market crash is imminent. So far, we’ve avoided it, and some stocks have enjoyed an incredible rally, particularly last month. But despite November’s excitement at the prospect of a vaccine rollout, the end of the year is looking less and less promising. So, does this present an opportunity to buy bargain shares? I think it does.
FTSE 100 falling
It seems a mutated version of the virus is rapidly spreading across the UK. So Boris Johnson and his government have responded with an emergency Tier 4 lockdown in some areas. Unsurprisingly, the FTSE 100 is falling. It appears the only reason the index has not fallen further is that the pound is also being hammered as Brexit continues to drag on and on and on. Many of the companies present in the FTSE 100 have an international presence with earnings reported in dollars. This means they benefit from a weak pound.
Nevertheless, among the battered remnants of a stock market crash, some shining gems can be found. These are the FTSE 100 and FTSE 250 companies that have the means to survive and emerge resplendent from the wreckage of market crash doom.
Bargain shares
For retail investors like me, it provides an opportunity to buy bargain shares. In a bull market, favourite companies get so much recognition, they often become overvalued. This has been illustrated by Tesla’s recent run of good fortune. It’s also been apparent in some UK stocks, such as Games Workshop and Frontier Developments. I’d like to own shares in either of these companies far into the future, but I’m put off by their high price-to-earnings ratios. A market crash provides an opportunity for savvy investors to buy good quality companies at knock-down prices.
The risk of declining share prices is something all investors face, but it’s easy to overlook this during a bull market. As such, a market crash is a panic-inducing moment for even the most experienced investor. But keeping a level head can create a once-in-a-lifetime chance to buy bargain shares.
Suppressed share prices in the FTSE 100
In the FTSE 100 this morning, International Consolidated Airlines Group (IAG) has fallen nearly 10%, Rolls-Royce is not much better crashing over 8% and BP is down nearly 5%. The price of oil is slipping because many countries have banned air travel to the UK as they try to prevent the mutated virus from spreading too rapidly.
I think a market crash could provide a bargain hunting opportunity of a lifetime. Not just for high-value stocks at knock-down prices. But also for the suppressed stocks like BP and Rolls-Royce that have a competitive advantage in their sectors. I think these former FTSE stars have a chance at sustained recovery over the long term.
A market crash is never a pleasant event to witness, but with cash at the ready, it can be a great chance to build a stronger portfolio on the path to financial freedom.