Many years ago I read a book I was given, called “The Great Stock Market Crash of 1990” or something like that – I forget the exact year in the title, but at the time it was in the future.
I’m reminded of that book every time I read predictions of doom for the financial markets, and I reckon I’ve heard of such scares pretty much every year since. The latest is a feared 2018 collapse, and this week’s market turmoil has had editors around the globe once again reaching for their ‘Great Crash’ headlines.
So should we shun shares right now? Absolutely not. If we shied away from investing in shares every time someone somewhere was predicting a crash, or whenever world markets looked wobbly, we’d never be in the market.
And we’d miss out on our best long-term generator of wealth ever. For more than a century, the world’s leading stock markets have been wiping the floor with other forms of investment.
Picking up
Anyway, I’m writing this on Friday morning with the FTSE 100 up 55 points on the day, just a day after my colleague Edward Sheldon wrote about a “quite brutal” week for stock markets. Even after the end-of-week rebound, the UK’s top index is still down more than 300 points (around 4.4%) on the week, and that’s a big swing in such a short time.
But short is the key thing there, and Edward offered some sage advice on how to deal with such things.
I’ve certainly seen way more short-term ups and downs, of this size and bigger, than I can possibly remember, and they’re hard to see now. Look back at a long-term chart of the FTSE 100, and what you’ll mainly see is a steady decade-by-decade rise. And the standard FTSE chart doesn’t tell the whole story as it does not include dividends, which can make a huge difference.
Here’s my favourite bit of stock market data — according to Barclays, which has been analysing stock market returns since 1899, £100 invested in UK shares in 1945 would have grown to a massive £179,000 with all dividends reinvested!
Need to do something?
I know it’s easy to just say “stay calm, it’ll be fine in the long term,” but investors often want to be active in such times and feel they should be doing the most they could to secure their investments. I agree, and I’ve always been a fan of keeping a list of favourite stocks that you’d like to buy and which could be steals if they got a little bit cheaper.
I’m currently big on the house-building sector (seeing it as significantly oversold due to overblown fears), and this week has seen, for example, Taylor Wimpey shares drop sharply. They’ve rebounded strongly today, but yesterday’s dip made them look even better value to me.
It’s also a great time to top up on long-term proven favourites, like Royal Dutch Shell with its shares now down 6% on the week. That’s pushed the forecast dividend yield to nearly 5.7%, so you could secure higher long-term income.
Once again I’m reminded of Warren Buffett’s advice to always look for great companies at good prices. This week has provided some opportunities to buy them at even better prices.
