During the 15 trading days since 19 June 2023, the FTSE 100 has fallen during 12 of them. And it’s 10% down from its all-time high achieved on 16 February 2023.
Although far from a bear market — usually defined as a 20% fall from a recent peak — it’s easy to feel pessimistic.
But instead of being fearful, I think now’s the time to take advantage.
In these circumstances, Warren Buffett tells investors to be greedy.
If I was lucky enough to have some funds available, I’d be looking to pick up some bargains. And invest more in the stocks of quality companies that I already own.
History
Although it’s not a certainty that the market will recover, history suggests that it should. But it might take some time, therefore, patience is required.
During 2001-2003, the FTSE 100 lost 43% of its value. But during the next five years, it recovered by 64%.
Despite its recent woes, the index is now 30% up on where it was at the end of 2011.
And by reinvesting all dividends received, it would have been possible to achieve a return of 84% between 2012 and 2022.
Shopping around
A loss of investor confidence means there are plenty of bargains to be had.
Shares in the FTSE 100’s housebuilders are all lower than they were when the UK economy was shut down due to the pandemic and everyone was told to stay at home.
The current price of a barrel of oil is higher than the average during 41 of the last 48 years. Yet Shell and BP have forward price-to-earnings ratios of 6.3 and 5.9 respectively, compared to 10 for the wider market. Their share prices are now 15% and 21% lower than their 52-week highs.
Tobacco stocks — British American Tobacco and Imperial Brands — are now yielding over 8%.
Banking shares usually benefit from an era of rising interest rates. However, they have also tumbled in recent weeks. NatWest, Barclays, and Lloyds are now 26%, 24%, and 21% lower than their highs of the past 12 months.
On 19 June 2023, Next upgraded its 2023 profit forecast from £795m to £835m. Yet its share price is back to where it was in January 2023.
Caution
Of course there are reasons why investors might be wary of buying each of these stocks.
The UK housing market is struggling in the face of rising interest rates.
The demand for oil, largely due to an economic slowdown in China, has fallen from recent highs.
There are increasing concerns about the health impacts of alternative tobacco products.
Some believe that banks will have to write down more loans in the face of worsening economic conditions.
And there are fears that the cost-of-living crisis will further impact retail sales.
These are all legitimate concerns, which means there’s no guarantee that stocks will return to their previous levels. And, during difficult times, earnings will fluctuate, which can impact the level of dividends paid.
But I’m remaining calm and intend sticking to the well-tested principle of investing for the long term.
As Shelby M. C. Davis, the American philanthropist and investor once said: “Invest for the long haul. Don’t get too greedy and don’t get too scared“.
