The past seven weeks have been a volatile time for UK shares. After the FTSE 100 index peaked on 16 February, a stock market slide has caused panic. And when there’s panic on the streets of London, I see a golden opportunity to get long-term richer.
The market drops
In the first few weeks of 2023, the blue-chip index kept up the surge that began when the US stock market hit bottom on 12 October 2022. From 30 December 2022 to 16 February 2023, the index jumped by 8% to hit a record intra-day high of 8,047.06 points.
At this point, I warned that the Footsie may have surged too far, too fast. After all, it was up an impressive 17.9% since its 12 October close. With investor exuberance so high, I felt a slide was looming.
For the record, the FTSE 100 closed at 7,335.4 on Friday. This leaves it down almost 712 points (-8.8%) in just over a month. What’s more, the index has now lost 1.6% of its value in 2023. To many investors, this slump has come as something of a shock.
Why stocks are like socks and hamburgers
My investing hero, mega-billionaire investor and philanthropist Warren Buffett, has remarked many times that falling share prices can throw up terrific bargains.
For example, he once wisely remarked: “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.” In 1997, he made a similar remark, arguing that buyers of hamburgers should wish for lower prices for beef.
So why do investors panic when the stock market slides? Surely we should welcome lower prices to buy largely the same quality goods? From my perspective, I plan to buy and own more shares for years to come, so bargain buys now should boost my future returns.
Which shares would I buy now?
When the stock market dived again on Wednesday, I begged my wife to find cash to buy yet more shares. Unfortunately, she was unable to oblige. Not because we’re broke, but because she’s already invested close to 100% of our spare cash in shares.
In short, I’ve been desperate to buy shares this week. As an old-school value investor, I see deep value hiding in the FTSE 100. For example, if someone handed me £25,000 in cash today, I would immediately invest it in, say, five quality stocks.
For me, one of the biggest bargains in London today is Blue Eagle bank Barclays (of which I already own some shares). At Friday’s low, this undervalued stock hit 137.74p. At this price, this stock offers a tasty dividend yield of 5.2% a year, with this cash yield covered over four times by earnings.
However, these are historic figures, based on the bank’s trailing earnings. And as the UK economy weakens and consumer confidence falls, banks’ bad debts and loan losses should rise. Even so, with such a wide margin of safety, Barclays looks like a steal to me for passive income.
Furthermore, I see outstanding value lurking in various FTSE 100 sectors. These include asset management and insurance, banking, oil & gas, mining, and telecoms. So if this stock market slide continues, I’ll buy even more cheap shares in April when I have the cash to spare!
