April’s dramatic stock market rebound appears to have run out of steam, for now. That is hardly surprising, given the uncertainty surrounding the impact of Covid-19. At this point, anything could happen. The FTSE 100 may rise next week, or it could crash again.
Neither would worry me. Short-term stock market volatility is nothing to be afraid, if you are investing for the long term. In fact, you can turn it to your advantage. Provided you are patient.
Here at the Fool, we always urge investors to make the most of a stock market crash. It is a terrific opportunity to buy top FTSE 100 shares at reduced prices.
Buy ahead of the stock market rebound
The index is now trading almost 2,000 points lower than its January peak, which mean investors enjoy a terrific discount today. Some top stocks are down by more than a quarter, others by more than a third. Think of it as a great big sale. Then roll up your sleeves and dive in.
The risk takers among you may target hard hit sectors, such as travel companies, but I would tread carefully there. That industry is likely to emerge in a very different shape, and may require a government bailout.
Personally, I wouldn’t go to the highest-risk end of the stock market, as here the rebound could be slow. I would look for companies with strong balance sheets, continuing revenues, customers who are still spending, and manageable debt. There are plenty of cheap FTSE 100 stocks that fit the bill, without making too much of a gamble.
Be ready for the next crash
Once you have selected your stocks, buy them. The temptation is to hang around, waiting for the next stock market crash to make them even cheaper. Resist it. Nobody knows when markets will crash, or how far they will fall. Just as nobody knows when the stock market rebound will arrive, and how far it will fly.
Please do not try to second guess the next move, because nobody can. Also, you will drive yourself crazy trying. I know, I’ve done it.
All you can do is take advantage of stock market movements after they have happened. It is why we say buy shares when they are at a discount, as they are today. Then hold on for the recovery.
Once you have bought your shares, all you need do is sit tight and wait for the stock market rebound to lift their value. The recovery will come, I just cannot say when. Nobody can. A recovery is as impossible to predict as a crash.
In the longer run, it doesn’t matter. If you buy shares at today’s reduced prices, you will be ready whenever the stock market rebound arrives.