Do you remember the stock market crash during the financial crisis in 2008? The FTSE 100 fell and fell and fell. It was painful, just like the current coronavirus crash. Some people thought it was the end of the world, just like they do today.
The 2008 stock market crash was halted, and this one will be too. Afterwards, when investors recover their nerves, the recovery will kick in. That’s what happened after Black Monday in 1987, the dot.com crash in 2000, and the financial crisis.
Share prices will fight back this time round too. The current massive wave of global financial stimulus must gain traction at some point. Meanwhile, social distancing and self-isolation should curb its spread, and human ingenuity should deliver a vaccine or cure at some point.
Don’t fear this stock market crash!
When that happens, you’ll either pat yourself on the back for taking the once-in-a-decade opportunity to top up your investment portfolio, or kick yourself for leaving it too late.
There’s going to be a bumpy ride ahead of us. At time of writing, the FTSE 100 is trading at just above 5,000 and, for all I know, it could fall even lower. There may be an even better opportunity to buy shares than there is today. Yet I’m not hanging around. I’ve started buying now.
It’s almost impossible to accurately spot the very bottom of the market after a stock market crash, the inflection point when share prices start rising again. There are too many variables. Mostly it’s driven by sentiment, and nobody can second-guess that, no matter how big their computer or research team. So you won’t do it either…
FTSE 100 bargains galore
And it doesn’t matter. What does matter is that, after the stock market crash, the FTSE 100 is now roughly 2,500 points lower than it was just a couple of months ago. You’re buying the same index, but for a third of the price.
This doesn’t mean it’ll shoot back up to 7,500 in a matter of months, giving you a 50% profit. The damage inflicted by the crash will take time to undo, but you should still be nicely ahead.
Especially if you buy companies that have been oversold amid the mayhem. Oil majors BP and Royal Dutch Shell have lost half their value. Their respective yields of 12.48% and 14.34% also look hard to resist.
Spirits giant Diageo is down more than a quarter but could recover strongly, as people will certainly need a drink once this is over. Asia-focused insurer Prudential is worth a look, as people will be even more keen to buy protection. Mining giants like BHP Group and Rio Tinto could benefit from stimulus and the Chinese recovery.
You’ll have your own ideas about which companies to buy. Just don’t leave it too long. You’ll never find the perfect time to buy them, but if you understand the risks, today looks pretty good.