It’s always difficult when the markets fall. The FTSE 100 crashed 3.6% on Friday, leaving it a touch above the 7,000 level. As the UK’s major stock market index, this shows just how difficult last week was for investors like myself.
I own a number of FTSE 100 stocks, and I’ve written about some on The Motley Fool too. So, when this index crashes, I know that my portfolio won’t look great.
But I’ve been investing for a long time now, and know that this is the nature of the stock market. Here’s what I’d do now after last week’s fall.
FTSE 100 mini-crash
Before I get into the stock-specific analysis, I want to understand just how bad (or not) Friday’s mini-crash was. There was very good reason for the market to fall because a new strain of Covid was announced. The World Health Organisation said it’s a “variant of concern” and called it Omicron, another Greek letter. Governments also banned travel from certain African countries where the outbreak has been detected. I understand why some sectors may fall on this news. Some examples would be travel and tourism, and hospitality, because these bans will impact potential profits and therefore share prices have to decline to reflect this.
But was the FTSE 100 mini-crash so bad? Well, it was the worst day since 11 June 2020. But there were eight worse one-day crashes of the FTSE 100 in 2020.
With this in mind, Friday’s stock market crash wasn’t so bad. The stock market recovered from these falls, so there’s a good chance it will again.
Here’s what I’d do
I’ll start by saying what I didn’t do. I didn’t watch the value of my portfolio fall on Friday. I actually didn’t check it at all. I do check each individual company on any news flow relating to them, but I concluded the new strain of Covid will have little impact on their businesses over the long term. I then choose not to stress over individual days when share prices fall.
Then I always keep Warren Buffett’s famous quote in mind: “Be fearful when others are greedy, and greedy when others are fearful.”
I think Friday was a case of investors being fearful (for good reason in certain sectors). But with fear comes irrationality, so some stocks will fall for little reason. When this happens, I particularly look for high quality companies that have become cheaper. This could be a current holding in my portfolio, or on my watchlist.
I also take a forward-looking view. I don’t think this Covid strain will mean a strict lockdown like in 2020 as we have vaccines now. Therefore, I don’t think the housing market will be impacted like it was last year. I noticed companies like Rightmove and Belvoir became cheaper on Friday, so this is where I focus my research.
In summary, I try to not show fear when markets crash. It helps when I don’t stress over my portfolio during the day. Then I form a view of the future and go looking for bargains, following the wise words of Warren Buffett.
Dan Appleby owns shares of Belvoir and Rightmove. The Motley Fool UK has recommended Rightmove. 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.