2018 was a year to forget for many stock market investors. The FTSE 100 closed down by 12.5% on 31 December, its biggest annual fall since 2008. Many individual stocks delivered much bigger losses.
As we head into 2019, there’s no shortage of things to worry about. For UK investors, these include Brexit, house prices, and the continuing decline of the high street.
Further afield, there’s the risk that the US-China trade war could slow the world’s two largest economies. Shares in tech giant Apple fell sharply on Thursday after the firm warned of a sales slump in China.
Are things really that bad?
Markets have known about most of these risks for the last year or so. I think a lot of this bad news is already priced into stock market valuations. If things turn out better than expected in 2019, I reckon share prices could bounce back.
It’s worth remembering that corporate profits have held up fairly well so far. Some of the biggest companies in the FTSE 100 are in much better financial health than they were three years ago. Examples include oil major Royal Dutch Shell, big banks such as HSBC, and mining groups like Rio Tinto.
These firms have reported rising profits and strengthened their balance sheets over the last few years. Despite this, shares in all three firms are between 7% and 15% lower than they were one year ago. Each now offers a well-covered dividend yield of about 6%. That looks tempting to me. It’s certainly much more attractive than the 1.5% available on popular cash ISAs.
I’ve been buying
There’s an old market saying that if you want to make money from stocks: “It’s time in the market that counts, not timing the market.”
What this means is that you can’t expect to catch the bottom of the market and do all your buying then. Unless you’re very lucky, history suggests that you’ll miss the recovery unless you’re already invested.
I don’t know if markets have bottomed out, or if last year’s sell off will continue. But the FTSE 100 as a whole looks decent value to me, with a price/earnings ratio of 11.2, and a dividend yield of 4.6%.
In my view, a number of good companies have been oversold and are now looking cheap. I’ve been buying shares for my portfolio in sectors such as tobacco, insurance, telecoms and airlines.
Among the stocks I bought late last year were BT Group, Vodafone and Go-Ahead Group. I’m also tempted by advertising giant WPP and packaging firm DS Smith. I may add one of these to my portfolio in the coming weeks.
Don’t take my word for it
I don’t know how 2019 will turn out. But I’m pretty sure that the world will keep turning, regardless of what happens in the UK or further afield this year.
As a long-term investor, I’m not too worried about the short-term outlook. If some of my investments fall in value after I’ve bought them, I’ll just sit tight, collect my dividends, and simply wait for the market to start rising again.
