I’d take advantage of this stock market crash by aiming to buy cheap FTSE 100 shares and holding them for the long term.
Buying shares when they are selling at lower prices usually involves going out shopping when the general economic weather is overcast. Well-known super-investor Warren Buffett once said: “You pay a high price for a cheery consensus.” And the opposite can be true as well. Namely, that the stock market tends to mark down shares when the economic outlook is gloomy.
Cheap shares in the FTSE 100 crash
That’s why Buffett is often out snapping up shares when many investors are cautious. However, this time, it’s a little different. So far, he hasn’t bought much of anything and the reason could be two-fold.
Firstly, he needs a big deal to move the dial on his overall portfolio, and can’t find an attractive purchase that is large enough. Secondly, Buffett really does seem unsure about what the future holds. Indeed, not many of us have lived through a pandemic before because the previous one was around 100 years ago.
And when the so-called Spanish Flu devastated populations towards the end of the first world war onwards, some of the industries of today were nothing like as large as they are now. Some didn’t even exist. Some of the worst-affected sectors now include the airline and travel sectors. The hospitality sector has suffered badly too, including hotels, restaurants pubs, bars and other types of eateries.
Some of the cheapest-looking stocks reside near the lower reaches of FTSE 100 index and they tell the story of the pandemic’s impact. Down there we can find companies such as cruise operator Carnival, and engineering company Meggitt, which serves the airline industry among others. Other big casualties include airline company easyJet and energy company Centrica.
Careful stock picking could pay handsomely
One strategy worth exploring is to research such down-on-their-luck outfits with a view to buying some shares at cheaper valuations. The hope then is that the underlying enterprise will go on to recover as the pandemic fades – perhaps because of a vaccine being discovered.
But Buffett’s not keen on airlines. In fact, he recently sold his airline holdings. The main problem is the lack of visibility. Who’s to say the airline industry will ever return to the levels of business we’ve seen in the past? Coronavirus has shown us that we can survive without travelling much for business or leisure.
However, some cheaper FTSE 100 shares seem to me to be better placed for recovery. I’d look at the housebuilders such as Persimmon, Taylor Wimpey and Barratt Developments. And I’d be keen to hold shares in firms that have captured a strong niche in their markets, such as vehicle-selling platform Auto Trader and property marketplace provider Rightmove.
Having selected shares to buy now, I reckon the key to getting rich and retiring early is to hold them for the long term.