With warnings about the coronavirus coming from every direction, it’s enough to make anyone panic. The markets and traders certainly did panic, sending the FTSE crashing last week to a loss of more than £200bn of value. This week Bank of England Governor Mark Carney warned the UK could face an “economic shock that could prove large but will ultimately be temporary”.
Given that no one can predict the future, here’s what I plan to do if the markets do drop further this month.
I think keeping a cool head is key. While the deaths of those affected are tragic, from a purely investing standpoint, this is no time to panic. The markets go through times of uncertainty. The recession, 9/11, war in the Middle East, other outbreaks – all these have come before, and yet the FTSE 100 had until last week been doing remarkably well.
Investing isn’t a pure science, in my view. There’s plenty written out there about psychology and about sticking to one’s strategy. The advice to keep calm and carry on applies right now.
It’s easy to panic and sell now in the expectation that things can only get worse if organisations such as the World Health Organisation are saying we’re in “unchartered territory”. But selling now most likely only crystallises a loss for you, or gets you at best a far worse price than just a few weeks ago. Instead, it seems more sensible to follow Warren Buffett’s maxim of “being greedy while others are fearful”.
Keep drip-feeding investments
Perhaps now more than ever, given the uncertainty, it’s worth investing a little money regularly to benefit from cost-averaging. For example, you could see a share price has fallen 20% and invest all your money in the shares at 200p. But what would you do if they fell another 20% in a week’s time? Many investors would panic and likely sell.
It’s probably far better to buy some shares now and then keep buying them every week, or fortnight, or month. This helps make it possible to follow Buffett’s advice to buy at times of panic. Over time the regular investing will see you through the ups and downs of the market and you’ll benefit from not being tied to a share at one breakeven point and one buying price from a specific point in time.
Basically, investing regularly reduces risk and helps you avoid a sleepless night. Both of which are good outcomes.
So, while the coronavirus dominates talk in offices, among friends, and on the news I’d advise staying calm, sticking to your plan, and buying more shares – gradually. Given there is a possibility for markets to fall further this is what I plan to do this month – and indeed it’s what I’m already doing.
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Andy Ross owns no share mentioned. 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.