How I’d invest £10k in this FTSE 100 bear market

I’ve been stockpiling cash since the worst market crash since 1987. And now I’m ready to invest in long-term FTSE 100 prospects, says Tom Rodgers.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When history looks back to 2020 it will record that the FTSE 100 fell into a bear market because of the dual gut punch of a novel coronavirus outbreak and a Saudi-Russia oil price war.

Both of those events are still playing out. It’s clear that we will feel their effects for years to come.

Bear markets are usually defined as periods when stock market indexes drop 20% from a recent peak. For us, that peak was around 19 February. The FTSE 100 stood at a now-unthinkable 7,457 points. But despite those crushing lows in March, the FTSE 100 has recovered by 19%. From a 23 March low of 4,993, the index has reclaimed nearly 1,000 points.

Whether this recent rally is sustainable is a matter for debate. If the pubs were still open, it would be order-of-business number one on the table between my investor friends and me.

Keeping hold of my portfolio of funds, FTSE 100, FTSE 250, and AIM companies has been an emotionally taxing process.

How to profit

One thing is certain. Choppy markets offer up a bunch of new opportunities for investors with cash on hand.

Most of the UK’s largest firms have said they have little to no visibility on their 2020 earnings. So company valuations will be necessarily inaccurate in the months to come. Long-term investors should be able to take advantage of this kind of mispricing.

As I said in the wake of the worst stock market crash since 1987, I’ve been stockpiling cash. I now have around five figures ready to deploy. And I’m ready to pounce whenever I see the market significantly undervaluing good companies.

Grin and bear it

You wouldn’t be human if you weren’t nervous of further falls in your portfolio. I was stunned by the steep drop in my net worth when the FTSE 100 crashed. About 15% of my ISA wealth was wiped out in a day. It’s been painfully slow, but because I stayed invested, I’ve regained everything that was lost.

Of course there will be businesses that simply run out of cash before the economy reopens, never to resurface. But my focus now is on the businesses I think will not just survive a 2020 recession, but thrive as life slowly returns to normal.

I’m looking to add to my holdings in 10%+ yield energy supermajors BP and Royal Dutch Shell. The 8.5% yield in Legal & General is attractive, too. And I think a new investment in a FTSE 100 UK housebuilder with relatively low debt and a conservative gearing, for example Taylor Wimpey, makes a lot of sense, too.

I would add that I think consumer habits will be changed forever by the coronavirus outbreak. I’m looking at outsourcing companies like Bunzl to profit from the extremely elevated level of purchasing in industrial cleaning supplies, for example.

Bear markets all share particular characteristics. Sellers, not buyers, set the price. Investor sentiment cycles rapidly between hope and despair. But bear markets are where small private investors like you and me can set ourselves up for some of the strongest gains we will ever see.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Tom Rodgers owns shares in Royal Dutch Shell, BP and Legal & General. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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