Don’t panic! A stock market crash is actually the perfect time to buy UK shares

I hate to be rude, but if current stock market uncertainty is putting you off buying UK shares, then you really don’t understand investing. The best time to invest in the FTSE 100, or other stock market indices, is at moments like these, when markets are volatile and investors are scared.

That’s totally counterintuitive, but it’s true. In a stock market crash, you have the opportunity to buy your favourite stocks at a much lower price than just a few months ago. If you aim to hold for the long term, you should reap the rewards when UK shares finally recover. 

Which they will, given time. History shows that equities have fought back from every crash in the past. It might take a year or two, but they get there in the end.

I’d buy UK shares in troubled times

It’s still a hard lesson to absorb though, and with good reason. People are hard-wired to run from danger. If you saw a 10-ton truck hurtling towards you, you’d quite sensible leap out of the way, rather than rush to give it a hug. 

This year’s stock market crash bore down on investors like a runaway truck, but those who ran away were the ones who got flattened. Those who embraced risk were able to buy UK shares a third cheaper on average than just a few weeks beforehand.

The FTSE 100 dipped below 5,000 on 23 March, but quickly jumped 20% after the world’s central bankers unleashed unprecedented stimulus. Those who embraced risk were handsomely rewarded. 

Selling UK shares in a crash is the worst thing you can do. That way you crystallise your losses, and lock yourself out of the subsequent recovery. You lose both ways.

The greatest investor of them all, Warren Buffett, reserved his most famous and oft-repeated aphorism reason for this phenomenon: “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

His mantra is easy to repeat, difficult to follow in practice. Human nature is to follow the crowd in times of trouble, rather than go against it. You might think you’re a special case, but so do lots of other people.

Use the FTSE 100 stock market crash

That’s why we keep hammering the message home on the Fool. Monday, for example, was a great day to go shopping for UK shares. The FTSE 100 fell more than 3%, and suddenly a lot of top companies were notably cheaper.

However, you shouldn’t buy FTSE 100 stocks indiscriminately right now. The pandemic is clearly going to drag on, and the economic cost will be incalculable. I would shun the hardest-hit sectors, such as airlines and cruise operators.

Healthcare companies, dividend-paying utilities, and technology and telecom stocks look relatively attractive right now. As do firms selling consumer staples that people still need in a lockdown. Many of these companies will have fallen along with everything else.

The future is uncertain. If it wasn’t, UK shares would cost a lot more.