It’s fair to say it’s been a terrible few weeks for global stock markets. Due to the uncertainty in relation to the impact of the coronavirus, the FTSE 100 has fallen significantly. This morning, the index was down more than 8% at one stage.
At times like this, when stocks are tanking, investing can feel extremely challenging. Confusion, frustration, disappointment, and anger are just some of the emotions that investors might be feeling right now.
However, history shows that in the past, the stock market has always recovered from short-term setbacks. With that in mind, here’s a look at how I’m handling the current FTSE 100 sell-off.
I’ve had a look at my investment portfolio this morning and it doesn’t look good. Plenty of my favourite FTSE 100 stocks are down significantly. Yet I’m not going to panic and do anything irrational. I’ve experienced large stock market declines many times before (the Brexit referendum, the Global Financial Crisis, 9/11, etc) and the market has always recovered.
Of course, given the uncertainty over the coronavirus, there’s a chance that the high level of stock market volatility we have seen in recent weeks could persist for a while. However, eventually, I expect stocks to recover.
Looking for opportunities
The next thing I’m doing is scanning my watchlists for buying opportunities. History shows that market collapses like the one we are experiencing at present can prove to be a great time to buy if you’re a long-term investor. As Warren Buffett says, if you want to make money from stocks, the key is to be “greedy” when others are “fearful”.
Right now, I’m certainly seeing a lot of value emerging. In my view, there are plenty of high-quality FTSE 100 companies that have been beaten up and now trade at attractive valuations.
For example, just look at Legal & General Group. Less than a month ago, it was trading near 320p. Now, its share price is just 225p. As a result, its forward-looking P/E ratio is just 6.6 and its prospective yield is 8.3%. That’s a steal, in my opinion.
Another good example is alcoholic drinks champion Diageo. In January, it was trading near 3,300p. Now, its share price is just 2,650p. That means you can pick the stock up on a forward P/E ratio of less than 20 with a prospective yield of 2.7%, which is rare for DGE, given its track record.
I also like the look of accounting solutions specialist Sage at the moment. It was trading near 800p in February, yet currently trades for less than 640p. That puts its forward-looking P/E ratio at 21.7, which is an attractive valuation for a company of Sage’s ilk, in my opinion.
Finally, I’m drip-feeding money into the market slowly.
I’ve invested a little bit of money in recent weeks as the market has fallen, but I still have plenty of cash on the sidelines. I’ll be looking to put that cash to work in the coming days and weeks, taking advantage of opportunities when they emerge.
Given that no one can predict what stocks will do in the short term, I believe that drip-feeding money into the market is the best way to deal with stock market weakness.
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.
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Edward Sheldon owns shares in Legal & General Group, Sage, and Diageo. The Motley Fool UK has recommended Diageo and Sage 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.