A little under three weeks ago, I wrote an article entitled A stock market crash in 2020? I’m prepared. I explained that I’d been following Warren Buffett’s lead in recent months and building up a large cash pile (about 20% of my ISA portfolio was in cash) in preparation for a stock market pullback.
It’s fair to say that the timing of that article was pretty impressive. Since it was published, the FTSE 100 has lost nearly a quarter of its value. It’s down from around 7,400 points to under 5,600 points – due to panic over the potential economic impact of the coronavirus. That’s an enormous decline in the space of a few weeks.
So, what am I doing now that global equity markets have actually crashed?
Staying calm
Well, the first thing I’m doing is staying calm. I won’t deny investing feels pretty challenging right now. My portfolio has been hit hard. Yet I’ve seen this kind of volatility before.
Since I bought my first stock in 1999, I’ve invested through a number of stock market meltdowns. These include the dotcom crash, 9/11, the Global Financial Crisis, the Brexit vote, and the late 2018 drop. Importantly, stocks have always bounced back.
I’m confident stocks will bounce back this time too… eventually. So, as a long-term investor, I’m looking to take advantage of the lower share prices on offer right now.
Buying slowly
The second thing I’m doing is drip-feeding money into the market slowly. I’m doing this in two different ways.
Firstly, I’m adding to my favourite investment funds, such as Fundsmith Equity, Lindsell Train Global Equity, and Franklin UK Rising Dividends. Little by little, I’m boosting my exposure, investing a bit here, a bit there.
Secondly, I’m buying more of my favourite stocks (I tell you what stocks I’ve bought this week in an article tomorrow). So far, I’ve added to about five holdings, taking advantage of the low valuations and big dividend yields on offer. Again, I’m investing cautiously, buying in small amounts. So far, I’ve invested less than a fifth of my 20% cash pile, meaning I still have plenty of dry powder for future buying opportunities.
I’ll point out that the big down days, such as Monday (where the FTSE 100 dropped 8%), are when I prefer to buy. When there’s panic in the air, and the market is a sea of red, I tend to step in and buy.
Of course, I’m aware there’s every chance global stock markets could fall further from here. Due to the economic uncertainty associated with the coronavirus, no one knows where this crash ends. The FTSE 100 could fall another 5%, another 10%, or even another 20%. Yet with stocks down roughly 25% already, I feel it’s a good time, as a long-term investor, to be averaging in to the market.
