5 things the stock market taught me these last 5 years

After reaching new highs in early 2020, Covid-19 collapsed stock markets. Almost five years later, I look back on five key lessons since late 2019.

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In late 2019, stock markets were riding high and the S&P 500 index kept setting new highs until mid-February 2020. Then Covid-19 swept the world, sending share prices plunging.

By 20 March 2020, US and UK markets had crashed by 35%, on growing fears of a global pandemic. Happily, the world bounced back and when effective vaccines were announced in November 2020, share prices soared.

Five years of ups and downs

As this may be my final Foolish article, I’ll share what drove my stock-market success over the last half-decade.

1. Sometimes, caution pays off

At end-2019, my wife asked what to do with our family portfolio. I replied that we should sell everything and go 100% into cash.

Pundits claim this ‘market timing’ is a bad idea. However, my wife did put 50% of our wealth into cash, thus avoiding the worst of the spring 2020 meltdown.

2. Market crashes offer great opportunities

On 20 March 2020 — 2020’s market low — I was so excited. With stock prices collapsing, I felt like a kid in a sweet shop, surrounded by bargains.

Within days, 100% of our wealth was invested in stocks, which have soared pretty much ever since. That’s another example of how our market timing worked.

3. Madness can be infectious

During the ‘meme-stock madness’ of early 2021, retail investors rushed to buy shares in otherwise ailing companies, in what quickly became a mob mentality.

Various beaten-down shares skyrocketed, with company valuations surging to levels wildly out of touch with economic reality. When these meme stocks inevitably crashed back to earth, some wild-eyed investors lost everything. Fortunately, I steered clear of this folly.

4. Bargain-hunting still works

At end-2021, US stocks had jumped to all-time highs, led by mega-cap tech stocks. Back then, I repeatedly argued that these were overvalued and poised to plunge.

Within 10 months, the S&P 500 had crashed by over 25%, clawing back nearly two years of gains. At this point, my wife and I pounced, buying six mega-cap US stocks at bargain prices on 3 November 2022.

To date, the ‘worst’ of these bargain-basement US stocks is up over 50%, while several have almost doubled. This showed me that I can identify and buy growth stocks using value-investing techniques.

5. British bargains abound

The FTSE 100 is up 9.1% in 2024, yet I still see Footsie bargains galore. For example, Legal & General Group (LSE: LGEN) shares, which offer one of the highest dividend yields in the London stock market.

Founded in 1836, L&G is one of Europe’s top asset managers, looking after £1.3trn of assets for 10m clients. On Friday (10 May), L&G shares closed at 248.6p, valuing this insurance and investment firm at £14.9bn. Over one year, the stock is up 10%, but has lost 8.3% of its value over five years.

Over the past year, the shares have ranged from a low of 203.1p on 25 October 2023 to a high of 259.6p on 31 January. They seem rather ‘range-bound’, but I have high hopes of a breakout to send them higher.

Meanwhile, my wife and I own this stock for its passive income, currently running at 8.2% a year. Of course, this payout could fall if stock markets melt down again, as they did in 2020. But we’re playing a long game!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Cliff D’Arcy has an economic interest in Legal & General Group shares. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

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