Last week’s stock market crash threw up some amazing bargains. With the FTSE 100 down 12% from its peak at one point, it was a good time to step in and buy top British companies at massively reduced valuations.
The Fool was doing what it always does at times like these, urging readers to be brave and seize the opportunity to top up their Stocks and Shares ISAs. I’d focus on companies with strong fundamentals, such as loyal customers, regular cash flows and healthy balance sheets, that have been caught up in the general sell-off.
In times of general market panic, investors indiscriminately dump the good along with the bad. If you’re alert, you can pick up all those companies you wanted to buy, but thought were a little expensive at the time. Or you could simply invest in a FTSE 100 tracker.
Decide how much risk you can take
Alternatively, you could be really bold and go shopping for stocks at firesale prices in the worst hit sectors which, in this case, seems to be travel. Tour operator TUI, budget airline easyJet, cruise specialist Carnival, and hotel chain InterContinental Hotels Group have been particularly hard-hit. You only have to see the fate of Flybe to understand why.
Whichever sector you dive into, you must be sure that the underlying business is strong, has manageable debts, and the strength to recover once the immediate threat has passed. In this case, of course, the threat is the deadly coronavirus.
Markets have mounted a recovery in the past few days. The FTSE 100 has picked up from Friday’s low of 6,580, to trade at 6,732, at time of writing, an increase of around 2.3%. Some of you may think that you’ve missed your opportunity as a result.Â
I’m not so sure. My experience of previous crises is that stock market panic comes in waves. Investor sentiment lurches from one extreme to another. One minute despair, the next hope. Bottom fishers and profit takers add to the confusion.
Looking at this morning’s newspaper headlines, I wouldn’t be at all surprised to see another sell-off in the days ahead. The spread of the virus is genuinely disturbing.
Be cool
What investors need to do now is stay calm. There’s enough panic around. If you buy now, you are still getting a good entry price, as the FTSE 100 is still down more than 10% year-to-date.
If it falls further, you can buy a little more. I reckon this is the best way to approach the current bear market, by drip feeding money in, and buying on the dips.
You have to accept that you’ll never get it absolutely right, and buy right at the bottom. Timing markets accurately is beyond even the best investment experts. So take your opportunities when you see them, and hold on for the long term.
Things may look grim now, but this crisis will pass too.