At around 6,890, the FTSE 100 index is down about 10% from its level in early February near 7,670. And to put that in perspective, it’s still just over 2% higher than the 6,730 it reached a year ago. So perhaps the stock market correction isn’t as severe as it feels.
In fairness, some stocks have moved lower than a mere 10% decline since hostilities in Ukraine accelerated. And some have moved higher, particularly those in the resources sector as commodity prices such as oil, gold, copper, iron ore, platinum and others have elevated.
Not all stocks deserve to fall
War is a terrible thing. And the geopolitical and economic fallout will have changed the dynamics in some sectors. So it’s probably rational for some stock prices to trade lower now and in the immediate future. But as with all periods of uncertainty and investor concern, a falling stock market can drag down stocks that don’t deserve to fall.
Some businesses will be unaffected by the current turmoil in Europe. And others will suffer a mere short-term setback from which they will likely recover quickly. And that’s why it’s often a good idea to hunt for good businesses selling at better valuations when the outlook is a little murky. After all, that’s been the strategy of ultra-successful billionaire investor Warren Buffett for decades.
But shopping for shares at times like this requires some courage and a good plan. And a key part of my plan is constant attention to building a watch list of stocks to one day own for the long term. With regard to courage, I’m working on it!
However, I think it’s a good time to become interested in investing a £10,000 lump sum in the stock market. And my approach to investing involves a two-pronged strategy, Firstly, I invest regularly in a spread of low-cost index tracker funds with the aim of capturing the overall returns of the market. And in an effort to get the compounding process on my side, I select the accumulation version of each fund. That way dividends reinvest automatically.
There’s nothing complicated about my tracker strategy. My portfolio contains trackers following the UK and US stock markets. And there are also a couple following emerging markets.
Three pillars of potential support
The second part of my strategy involves making investments in the stocks of individual companies. And if chosen carefully, there’s potential for some of those to do well as we emerge from the current bear market. But, of course, a positive investment outcome isn’t certain. All shares carry risks alongside their potential to deliver positive returns.
However, I’m focusing on the three pillars of quality, value and operational momentum when it comes to analysing businesses. And after bear markets like this one, I reckon some interesting opportunities are developing among big-cap FTSE 100 shares.
For example, I’m watching analytics and decision tools provider Relx and information services company Experian. And I have a keen eye on speciality chemicals business Croda International. However, I wouldn’t buy any stock without first undertaking my own thorough research.
