In signs reminiscent of March 2020, the last three trading days has seen the FTSE 100 lose 10% of its value. However, I believe smart investors who are able to move quickly to deploy capital into this market could profit extremely handsomely in the years ahead.
Don’t lose your head
My Stocks and Shares portfolio is deep in the red at the moment. Although highly disconcerting, one thing I refuse to do is panic and sell out. In fact, I’m doing the exact opposite and actively moving to buy shares.
Billionaire investor Warren Buffett once famously said: “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble”. At moments like this, investing becomes purely a psychological phenomenon.
I say that because many investors fear buying today in case the market continues to tumble tomorrow. In my experience, that’s the wrong approach to take.
Come prepared
I’ve spent the last few months undertaking research into stocks that I’d love to buy in the eventuality they go on a fire sale. Undertaking fundamental analysis makes it a lot easier for me to press the buy button during periods of panic, even though I have absolutely no idea if my buys will continue to fall.
Of course, I need to assess the news in real time too. So do I believe these tariffs warrant a huge sell off? I don’t believe so. What do you think will happen in the next few days or weeks as countries begin to negotiate deals with the US? Exactly. Stock markets will surge.
The manner of the sell-off has many drawing parallels with the Covid crash. I don’t see it. This is an event-driven correction. JP Morgan might have upped the chances of a global recession to 60%, but that’s purely speculative on its part. And even if a recession does ensue, many stocks are more than priced for such an eventuality.
Diversified business
One stock I really like the look of at the moment is Associated British Foods (LSE: ABF). This fashion-to-food company is capable of thriving both in boom periods and recessions. In its latest trading update back in January, its Primark fashion/lifestyle retail brand saw like-for-like sales declined 6%. Cautious consumers were pulling back on discretionary spending.
It’s worth noting that following the scandal surrounding the former CEO of Primark, rumours have begun circulating that the parent group is considering selling it off. Being the crown in the jewels, this would leave the company cash rich, but considerably smaller. Regardless, I do believe the value proposition of the retailer resonates with its core customer base and don’t expect that to change.
Should a recession ensue, other parts of its business are also capable of taking the slack. I can’t see sales of Kingsmill bread falling off a cliff edge regardless of what happens to the economy.
This is predominantly a family run business in which the original founder’s lineage still owns a significant slice of the shareholding. Conservatively run, with £1bn in cash, a leverage ratio of 0.7 times, and a trailing dividend yield of 4.7%, It has all the qualities I look for in these uncertain times.
I believe it’s one any investor should consider owning. I certainly will be adding to my position.
