We’re seven days on from a week in which stock markets regressed in domino fashion around the world and the headlines were screaming about a FTSE 100 slump.
While it’s easy to pooh-pooh the panic, a 4.4% fall in just a week for the UK’s index of biggest companies isn’t an insignificant fall. And though the drop was followed by a couple of more positive days, a tail-off on Thursday and Friday has left the Footsie pretty much flat this week.
The lessons
What should Foolish investors learn from this? The main thing for me is that things just got a little bit better for us.
Yes, athough it might sound counter-intuitive, I prefer it when share prices are falling rather than rising. The reason is that I’m still looking to buy shares to help fund my retirement, and I’m not planning to sell any for a good few years yet.
That means short-term market drops work to my advantage, helping me to pick up shares at a lower price than I’d previously expected. For some examples of what I mean, let’s take a quick look at our Motley Fool writers’ top shares for October.
Top picks
In Smith & Nephew, Kevin Godbold sees “well-balanced growth in revenue, cash flow and earnings.” And having worked in a field related to joint replacement, I know how good and widely-employed its products are. The market dip has provided a “6% off” special on Smith & Nephew shares.
Tobacco producer Imperial Brands is one I’ve considered cheap for some time, and I wasn’t at all surprised to read Peter Stephens’ opinion that its valuation offers a margin of safety and that it has “defensive characteristics, should the current bull market come to an end in the near term.”
I’ve also recently commented on the attractiveness of dividends at BHP Billiton, which Roland Head pointed out is supported by strong ROCE, a fat operating margin, and by free cash flow of £9.6bn. Roland believes that “further gains are likely as the mining sector returns to growth,” and I agree.
Did I mention that Imperial Brands and BHP Billiton are both included in the one-off October sale? Imperial and BHP shares have both been discounted by 4%. If they were good value before, they must be better value now.
Search for safety
I do find it helpful to use times like this to investigate which shares are likely to be safer in the long term, and less likely to lose value when the market gets the jitters. On that score, I note Unilever shares are down only 1% since before the FTSE’s stumble, and that fits in with its reputation for defensiveness.
And shares in National Grid have actually gained 3% since before the panic, which I think reinforces the value of long-term dividends from this provider of vital energy distribution infrastructure.
If you make a trip to the supermarket and find your favourite brands have all had their prices cut, you’d be happy and might even consider stocking up, wouldn’t you? I would, and I reckon we should do exactly the same with top quality shares.
