Will we see another FTSE 100 crash soon? Shares look cheap to me now, so I don’t think so.
But if they should get even cheaper, we’ll need to decide which to buy. Actually, in a new crash, I reckon most Footsie stocks could become no-brainer buys.
So it’s easy, then. I’ll just buy anything, or buy an index tracker fund. That’s all, and bye for now, it’s been nice talking to you. No, wait…
Buy the market
I do actually think just buying the market can be a great strategy in a stock market slump. A FTSE 100 index tracker is one way to do it. There are also investment trusts that spread the cash across a whole range of top stocks.
But I really do have my favourite individual stocks that I’d want to snap up if we should see a new bear market.
Rolls-Royce Holdings is one. I look back on the times over the past few years when I saw them as good value, but held back due to the uncertainties.
But when a long-term quality company is cheap, shouldn’t we buy? Well, if I get the chance again, I’ll try not to miss it.
A market fall can be a great time to bag some long-term dividend stocks. If we want to hold them for decades to provide some passive income, why should we care about the share prices?
I don’t, really, except that when they’re lower, dividend yields are higher.
M&G offers a 9.6% dividend yield. And just imagine what that might soar to should the share price slide. Yes, it’s a great yield already, and M&G is on my wishlist. But if it should fall first, it would be even better.
There’s another strategy that I think long-term investors could benefit from in a new downturn. And that’s whatever our current strategy is… just more of it.
Those of us who’ve been buying shares for years will know what we want. We’ll understand the sectors and companies we like best.
And we should, hopefully, have a feel for where good valuation lies, without having to do our analysis from scratch each time. It follows from the idea that we should buy what we know.
For me, that’s mainly banks and housebuilders. Taylor Wimpey, for example, is on an 8% dividend yield. And banks are on what look like silly low price-to-earnings (P/E) ratios. We’re looking at just six for Lloyds Banking Group, and only five at Barclays.
These are stocks that I already think are cheap. So if they fall further… I’ll want to buy as much as I can.
Saying all this, we do need to be a bit cautious in any new crash. There might actually be good reasons for it, and our favourite stocks might really be in trouble. We only need to look at the 2008 banking meltdown to see that.
But as long as I keep my eye on diversification, I reckon my long-term gains can beat any short-term pain.