Market confidence remains extremely fragile. But the buyers are out in force on Tuesday. I can’t say I can blame them.
Look, we’re in uncharted territory here. All we know is that Covid-19 infection rates outside China continue to spike and lockdown measures are intensifying. We have no idea as to long or how invasive the pandemic will prove to be. Nor what the financial hit to the global economy will look like.
Day traders remain in some peril as more heavy market falls could be just around the corner. The threat to long-term share investors, however, is much less pronounced. As I say, the steady spread of the coronavirus is causing many people to fear the worst. But the FTSE 100’s performance in recent decades suggests that those who buy stocks with a view to holding them for many years have nothing to fear.
Be like Buffett
I’d like to refer you to a piece by my Foolish colleague Tom Rodgers at this point. In a recent piece he plucked a cluster of top Footsie-quoted shares and explained why they’re brilliant dip buys following recent heavy weakness.
But as great as these companies are, I’m not interested in discussing them today. What I am interested in, however, is a quote Tom took from billionaire stocks guru Warren Buffett in a recent CNBC interview. It’s wisdom long-term share pickers should be following in this current crisis.
Like Buffett says, “you don’t buy or sell your business based on today’s headlines.” You buy stocks based on how they’re likely to perform over the next decade and beyond. Not based on what their profits outlook is like for the next couple of years.
As the so-called Sage of Omaha adds: “If you’re buying a business, you’re going to own it for 10 years, 20 years, or 30 years.” So why worry unnecessarily about what’s going down today, a brief period in the broader fullness of time?
Don’t panic!
All signs suggest that the coronavirus crisis will have the sort of impact that the world hasn’t seen since the flu pandemic just over a century ago. This leaves a lot of guessing over how the modern world will adapt to it. And what the social, economic and political consequences will be.
It pays, however, for investors to consider the performance of the FTSE 100 over, say, the past 30 years to get a flavour of what we can expect. Since March 24 1990, there have been various crises to navigate. The dotcom bubble at the start of the millennium and the 2008/09 banking meltdown. The terrorist attacks of 9/11 and the first Gulf War in the early 1990s can’t be ignored either.
There were mass instances of H5N1 (avian flu) and H1N1 (swine flu) that swept through global populations in the first decade of the new millennium too. Yet in spite of these troubles, the FTSE 100 is still up 131% from levels seen three decades ago, above 5,200 points.
Profit warnings are dropping like confetti and dividends are being cut in large numbers. Stock pickers clearly need to be careful, then. But there’s no reason why long-term investors should pull up the drawbridge. With many Footsie shares dealing at bargain-basement prices, in fact, I reckon the recent sell-off provides a brilliant buying opportunity.