Investors fear uncertainty. Unfortunately, at the moment the FTSE 100 — and the wider economy — is filled with it. The coronavirus crisis is difficult to comprehend and nobody is entirely sure how the disease will affect business and what it will mean for stock prices in the future.
Fear and uncertainty have caused FTSE 100 stocks to fall roughly 25% since the beginning of 2020. As personal investors, seeing the market drop by this much can be unnerving, especially when financial journalists mention other investments (like gold) as ‘safer’ options.
With the UK in lockdown, sadly people will not be spending their money in the same way. In these circumstances, it is unsurprising that some businesses (like airlines) are hurting badly. As this is a rapidly moving situation, it is still unclear which industries will suffer and which companies will be able to ride out the storm.
To invest in the stock market when it is substantially falling is the ultimate contrarian move and takes nerves of steel.
But is it the right thing to do?
Time to sell your shares?
If you are still sitting on your stocks, like I am, your portfolio’s value will no doubt be quite a bit lighter than it was several months ago.
The thought has crossed my mind about whether I should sell some of my holdings and put it in what is traditionally safer, like cash or bonds.
But by selling my position, I would be turning a paper loss into an actual, realised loss. The coronavirus will almost certainly wreak carnage upon businesses, and yet I have faith that in the long term, the British economy will be OK.
I am certain that all of us have thought about selling. Even other Fools, like Tom Rodgers, have thought about it.
As Tom pointed out, panic-selling in a market crash is a bad idea. Nobody can second guess what FTSE 100 stocks will do next.
The only thing I am reasonably certain about is the analysis I have carried out and I am comfortable that I have bought stocks in quality companies. If nothing material has changed at these businesses, then I will continue to hold my position.
I am investing for the long term and have confidence that over the next 30 years, the revenues and profits for these companies will improve. Hopefully, the stock price will correspond with this and in time will increase too. And dividends will help as well.
Time to buy FTSE 100 stocks?
I would look at it this way — in this market crash, now could be a good time to buy a portion of quality companies at a lower valuation.
I am currently buying the same stocks I always have done, but just at a reduced price. Although the FTSE 100 may continue to drop further, by purchasing stocks at a regular interval I hope to ride out some of the turbulence and buy at the low points.
The market will probably remain volatile for some time. But in the long term, I have confidence that the FTSE 100 will recover, just like it did after the crash in 1987 and after the financial crisis of little more than a decade ago.
Now could turn out to be a great opportunity to pick up wonderful stocks for a bargain price.
