We knew Monday was going to be a rough day for stock markets, but most people didn’t expect it to be this rough.
That dramatic 8.5% drop in Chinaâs stock market set the tone, with even official Chinese state organs describing the rout as âBlack Mondayâ. At time of writing the FTSE 100 is down 4.5%. Where it goes next is anybodyâs guess.
Help! Panic!
Most of you will have been expecting something like this: analysts have been warning of a Chinese hard landing for several years. When the world’s second-biggest economy succumbs to panic, it sends a shiver down every investor’s spine.
Once you look past those chilling headlines about £56 billion being wiped off the FTSE 100 in a single session, you will find good reasons to stay calm. If you take the longer-term view, as we do at the Fool, you will see that this is merely a stock market shiver. And like every single stock market shiver that has come before, it will pass.
It is certainly painful watching the FTSE 100 wipe out all the gains it has made this year (and last year as well). But unless you do something daft, like selling up in panic, you haven’t actually lost any money yet. Please don’t join in the rush to sell, as all you will do is lock in your losses, and then you really will have lost money.
Time Is On Your Side
Nobody should be investing in stocks and shares over a shorter timeframe than five years. Ideally, they should be investing for 10, 15 or 20 years. If you do that, Black Monday will look like a blip. You won’t remember what all the fuss was about, and neither will your portfolio.
In October 1987, global stock markets suffered one of the worst crashes of all time. The US market fell 23% in a day, then topped that by falling 25% the very next day. That puts today’s troubles in perspective. By early 1988 markets had recaptured all of their losses. Yes, all of them. In just a few months.
For far-sighted investors, Black Monday has a bright side. The FTSE 100 is now down 15% since peaking at around 7100 in April. That makes today a manifestly better day to buy shares than four months ago, as there are amazing bargains to be had. Although it may be a bit too early to start buying today, as markets probably have further to fall, now is the perfect time to start writing your shopping list.
Shop While Markets Drop
Mining giant BHP Billiton and oil majors BP and Royal Dutch Shell are in the teeth of recent storms and clearly too risky for some, but if you’re feeling brave, you might note that all three now yield an incredible 7% or more.
Pharmaceutical favourites AstraZeneca and GlaxoSmithKline are incidental victims in the market rout. Both are now more than 5% cheaper than they were a week ago, yet they are the same great companies, with the same great prospects. Utility giant National Grid is down almost 2.5% this morning, but remains exactly what it was before: a solid long-term income play yielding more than 5%.
Nothing has fundamentally changed about a string of solid UK-listed companies, such as Centrica, Diageo, Reckitt Benckiser, Unilever and Vodafone. The one difference from before is that they are all cheaper to buy, and offer higher yields.
Investing has always been a bit of a carry on. This week is nothing new. The crisis will pass and we will soon see what a great opportunity it was to buy your favourite companies at reduced prices. Provided you stay calm.