Twenty years ago I read an article called “The Great Crash Of 1995“, foretelling a stock market wipeout that was surely coming that year. As it turned out, the FTSE 100 gained 20% in 1995 and continued its bull run for several years beyond.
Now, two decades on, I’m seeing people bewailing the Great Crash of 2015, which they say is sure to send us plunging back into recession. Some reckon it won’t happen until 2016, but one thing they seem to be agreed on is that it will be a big crash when it comes!
Buffett a bear?
Some even claim that Warren Buffett is on the great crash bandwagon, pointing to his reductions in holdings of some consumer-led US stocks after the S&P 500 has more than trebled since March 2009. Over the same timescale, our own FTSE 100 has doubled, and it did start to falter towards the end of 2014.
It’s pretty much a given that the madness of crowds leads stock markets to overreact to just about everything — when the banking panic set in, share prices were pushed down way below any rational valuations for sure. But now that we’re out of recession and stock markets have risen strongly, have they gone too far too quickly? Will longer-term projections of low economic growth start to be felt, and will the punters desert shares once again?
While consumer spending is rising once again, so is personal debt, and if that hits the buffers again it could cause problems. Interest rates are still being held very low too, making stock market dividends look even better by comparison, but when they eventually do rise it would make bank rates look more attractive and will, they say, lead to cash being withdrawn from shares and stashed in savings accounts.
The oil crash
But perhaps a bigger worry is that continuing low oil and commodity prices are leading indicators of a further global slowdown, which would have an ever more adverse affect on stocks. So should we be selling off our shares now, while we can?
No, not a bit of it, because it’s all a load of baloney!
Sure, I do think some indices are getting a bit toppy, in the US at least. But the FTSE 100 is currently on a P/E of around 17 to 18, which is only a little above its long-term average of about 14 — and to me that suggests perhaps a bit of a cooling, but nothing like the 50% crash and worse that some are predicting.
And there are still some cracking dividend yields to be had. There are around 30 companies in the FTSE 100 on forecast yields of 4% or better, with half of those offering upwards of 5%. National Grid and SSE, for example, are on predicted yields of 5% and 5.5% respectively, and we have an even better 5.7% expected from BP and 6% from Royal Dutch Shell.
You can expect around 5.7% from GlaxoSmithKline, 5.3% from BHP Billiton, and there’s 4.4% on the cards from Aviva. And in those few companies alone, we have the makings of a solid long-term portfolio.
Don’t panic!
So no, don’t panic and sell all your shares. If you seek out those top dividends from quality companies and keep reinvesting your 4-5% a year, and leave the share prices to take care of themselves over the long term, I reckon you’ll do just fine.
And remember, we do get stock market crashes from time to time — just not when everyone is expecting them!
