The FTSE 100 has performed better than most global stock markets this year, but it has still fallen sharply. Trading at just over 6,900, it is down almost 8% in 2022.
This has been a tough year. The global economy had barely started to recover from the pandemic, when Putin invaded Ukraine.
Energy prices have rocketed, while inflation is in double digits. The era of cheap money has hit an abrupt close, as stimulus goes into reverse. All the froth has gone out of stock markets, and house prices may soon start falling.
The FTSE 100 has done okay
The UK is in crisis, after former chancellor Kwasi Kwarteng’s mini-budget undermined the pound and the nation’s pension funds. As far as the FTSE 100 is concerned, the only surprise to me is that it has not fallen further.
I’ve no idea whether we will see another sell-off. I never predict stock market movements, for the simple reason that it is not possible to do so with any consistent degree of success.
Instead, I aim to take advantage of market movements after they have happened. At least there I’m on solid ground. The FTSE 100 has dropped this year, therefore my favourite companies are cheaper. If I buy them today, I’m getting a relative bargain.
Naturally, the lead index could drop again, making them cheaper still. If that happens, I will console myself with the fact that my reinvested dividends will pick up more stock at the lower price.
I will further console myself by investing a little more, at the lower price. That’s how I invest. By feeding any spare money I have into the market, taking advantage of any dips.
There are so many bargain stocks on the FTSE 100 right now, I hardly know where to start. Many individual stocks have fallen much further than the index as a whole. For example, private equity firm Intermediate Capital Group is down 51% over 12 months, and now trades at a bargain 5.5 times earnings. It yields a thumping 7.67%.
I’m amazed by how cheap stocks are
Many other FTSE 100 stocks have a similar profile. Barclays is down 24% in the last turbulent year. It trades at just 3.93 times earnings and yields 4.16%. British Land is down 30%. It’s valued at just 3.38 times earnings and pays income of 6.43%.
I would need to do more research before actually buying them, but their low valuations and high yields are incredibly tempting. There are loads more like them on the FTSE 100. This is a great time to buy dirt-cheap dividend stocks.
The big risk when buying companies is that I may be walking into a value trap. Especially now, as inflation powers upwards and consumers and businesses face the worst cost squeeze in four decades. I expect things to get worse rather than better, but I also remind myself that stock markets typically recover long before the actual economy does.
If I waited for happier times to buy FTSE 100 shares, they would cost me a lot more than they do today, and yield far less.