Last week saw one of the biggest and possibly fastest sell-offs in the recent history of global equity markets. Fears that the coronavirus outbreak may trigger a global recession are mounting quickly. And FTSE 100 investors, as well as analysts, are now wondering whether we are in a bear market.
Today, I’d like to discuss why this pullback may be giving buy-and-hold investors an opportunity to pick up top-quality stocks at attractive prices.
Market timing may be costly
I enjoy reading about the history of the financial markets. Choppiness and downturns have always been a reality of financial markets. Many of our readers would have heard of several of the famous historical bubbles and market crashes.
Several past financial bubbles and crises include the Dutch Tulip Mania of the 17th century, the South Sea Bubble of the 18th century, the British Railway Mania of the 19th century, the Florida Real Estate Bubble of the 1920s, the Wall Street Crash of 1929 (leading to the Great Depression), Black Monday in October 1987, the collapse of Barings Bank in 1995, the Dotcom Bubble in the late 1990s, and finally the financial crisis and the bear market between 2007 and 2009. In the UK, we can possibly add the recent volatility caused by Brexit to the list.
From outside, the story of each bull or bear market may initially look different, but dig deeper and it isn’t. After all, human psychology never changes: fear and greed are the two emotions that drive investors to the extreme.
The common denominator in all of these market downturns has been that it is almost impossible to know when exactly they will start or end. And individual investors are usually wrong when attempting to time the markets. If they act upon their emotions and sell at the height of the panic, then those investors potentially miss out on the gains when the markets recover – and yes, markets do recover.
It might possibly be too optimistic to expect shares to recover fully in a matter of days. But what I can tell you is that in hindsight, this recent downturn will be remembered as a great buying opportunity. And those of us who do not get the shopping bag ready in March, may end up regretting not loading up on many high-quality shares.
The companies I’m watching now
The FTSE 100 seems to be the initial index Britons mostly consider when they first start investing. The group comprises the 100 most capitalised blue-chip companies listed on the London Stock Exchange (LSE).
Below are several stocks I’m studying further along with their price change year-to-date (YTD) as well as their dividend yields.
- British American Tobacco, YTD down 2.1% – dividend yield of 6.8%
- Bunzl, YTD down 4% – dividend yield of 2.7%
- Carnival, YTD down 37.2% – dividend yield of 6.3%
- GlaxoSmithKline, YTD down 8.3% – dividend yield of 5.1%
- Lloyds Banking Group, YTD down 19.4% – dividend yield of 6.7%
- Rio Tinto, YTD down 18.3% – dividend yield of 8.2%
- Royal Dutch Shell, YTD down 21.7% – dividend yield of 8.3%
It’s official: global stock markets have been on a tear for more than a decade, making this the longest bull market in history.
But this seemingly unstoppable run of success poses an uncomfortable question for investors: when will the current bull market finally run out of steam?
Opinions are split about whether we’re about to see a pullback — or even a bear market — in 2020. But one thing is crystal clear: right now there’s plenty of uncertainty and bad news out there!
It’s not just the threat posed by the coronavirus outbreak that could cause disruption — Trump’s ongoing trade-war with China and the UK’s Brexit trade negotiations with the EU rumble on... and then there’s the potential threat of both the German and Japanese economies entering recession...
It all adds up to a nasty cocktail with the potential to wreak havoc and send your portfolio into a tailspin.
Of course, nobody likes to see the value of their portfolio fall, but fortunately, you don’t have to go it alone. Download a FREE copy of our Bear Market Survival Guide today and discover the five steps we believe any investor can take right now to prepare for a downturn… including how you could potentially turn today’s market uncertainty to your advantage!
tezcang has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended Carnival and Lloyds Banking Group. 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.