On Monday, the FTSE 100 crashed to a low of 5,891.6 points at one stage, and closed below 6,000 points for the first time since 2016. At the end of the day, London’s top index had fallen 7.7%.
Past FTSE 100 crashes
But we’ve had one-day FTSE 100 crashes bigger than that plenty of times, and we’ve always got over them. According to data from Refinitiv, we’ve got to go back as far as 2008 for a worse fall. On 6 October that year, the FTSE 100 lost 7.9%. But since then, the index is up 40% — even after the coronavirus crash.
As I write on Tuesday morning, the headlines are shouting “Global stocks rebound”, and the Footsie is up 3.8% at 6,195 points. Whenever there’s a panic sell-off of stocks, they always seem to rebound shortly after. It’s been that way for as long as I’ve been following UK shares, and I expect it to continue.
Why then do investors do it? If the FTSE 100 has always come back from every fall throughout its history, why do people sell out and then buy back in again? Why not just keep hold of your shares and save two sets of transaction costs?
I’ve been asking that question since before I bought my first share, and I still have no good answer. The obvious reason is that investors fear they’ll face further short-term losses unless they sell. But trying to time things so you get out before the bottom, and then buy back in again at a lower price, is almost impossible. So what should we do?
For me, the answer is simple. As long as I’m still investing for the long term, I’ll be looking to buy more shares at lower prices. I’ll do my research by examining individual companies and, when I see great ones for sale at bargain prices, I’ll be a buyer.
That was my approach before the latest crash, and I see no reason to change it now. We never know when the next stock market slump is going to come along, and it could very well be tomorrow.
FTSE 100 crash tomorrow?
So what if Tuesday’s gain is just a one-day respite before the FTSE plunges further? What if it crashes as far as 5,000 points and below? We’ve seen levels that low as recently as 2010, and the banking crisis sent the index plummeting below 4,000 at one point.
At the time, I couldn’t believe my luck seeing so many shares at super bargain prices. I didn’t have a lot of spare cash at the time. But what I did have went into top dividend shares, and I’ve been enjoying elevated yields from them since. If it happens again I’ll be in a better position to benefit, with a decent chunk of pension cash waiting to be invested.
A FTSE fall to 5,000 would be a drop of almost 20%. Just think how wonderful it would be to be able to buy today’s top FTSE 100 stocks in a ‘20% off’ sale.
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Views expressed 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.