A week on, and what did we learn from the FTSE 100 slump?

What does the aftermath of the week-long slump in the FTSE 100 (INDEXFTSE: UKX) tell us?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

We’re seven days on from a week in which stock markets regressed in domino fashion around the world and the headlines were screaming about a FTSE 100 slump.

While it’s easy to pooh-pooh the panic, a 4.4% fall in just a week for the UK’s index of biggest companies isn’t an insignificant fall. And though the drop was followed by a couple of more positive days, a tail-off on Thursday and Friday has left the Footsie pretty much flat this week.

The lessons

What should Foolish investors learn from this? The main thing for me is that things just got a little bit better for us.

Yes, athough it might sound counter-intuitive, I prefer it when share prices are falling rather than rising. The reason is that I’m still looking to buy shares to help fund my retirement, and I’m not planning to sell any for a good few years yet.

That means short-term market drops work to my advantage, helping me to pick up shares at a lower price than I’d previously expected. For some examples of what I mean, let’s take a quick look at our Motley Fool writers’ top shares for October.

Top picks

In Smith & Nephew, Kevin Godbold sees “well-balanced growth in revenue, cash flow and earnings.” And having worked in a field related to joint replacement, I know how good and widely-employed its products are. The market dip has provided a “6% off” special on Smith & Nephew shares.

Tobacco producer Imperial Brands is one I’ve considered cheap for some time, and I wasn’t at all surprised to read Peter Stephens’ opinion that its valuation offers a margin of safety and that it has “defensive characteristics, should the current bull market come to an end in the near term.”

I’ve also recently commented on the attractiveness of dividends at BHP Billiton, which Roland Head pointed out is supported by strong ROCE, a fat operating margin, and by free cash flow of £9.6bn. Roland believes that “further gains are likely as the mining sector returns to growth,” and I agree.

Did I mention that Imperial Brands and BHP Billiton are both included in the one-off October sale? Imperial and BHP shares have both been discounted by 4%. If they were good value before, they must be better value now.

Search for safety

I do find it helpful to use times like this to investigate which shares are likely to be safer in the long term, and less likely to lose value when the market gets the jitters. On that score, I note Unilever shares are down only 1% since before the FTSE’s stumble, and that fits in with its reputation for defensiveness.

And shares in National Grid have actually gained 3% since before the panic, which I think reinforces the value of long-term dividends from this provider of vital energy distribution infrastructure.

If you make a trip to the supermarket and find your favourite brands have all had their prices cut, you’d be happy and might even consider stocking up, wouldn’t you? I would, and I reckon we should do exactly the same with top quality shares.

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.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Imperial Brands. 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.

More on Investing Articles

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »