Any doubt that we’ve just witnessed widespread economic shock has disappeared. The most devastating stock market crash since Black Monday 1987. Positions wiped out. Portfolios decimated.
It’s a pretty scary place to be. My collection of FTSE 100, FTSE 250, and AIM shares, plus index tracker funds is down by around 15% at last count. That’s a lot of money.
So what now? Where do we go from here? Crucially, how do we take advantage?
One thing to note is that a massively over-leveraged and value-inflated stock market just got a whole lot cheaper.
Blood on the streets
If you’re a long-term investor and you’ve never witnessed scenes like these, you’re not alone.
Even I’ve thought about selling up as a knee-jerk reaction. It makes sense, right? To liquidate everything then have that ready cash on hand for when valuations are right at the bottom. Well, no. The issue you face is when to buy back in. No-one can tell you the future. Does a market rebound represent the green shoots of recovery or a dead cat bounce before another shocking plunge?
If you sell out now, you have potentially tens of thousands of pounds at your fingertips, your entire financial future hovering at the click of a button. There’s intense pressure not to make a mistake. You’ve already sold your entire holdings at bargain basement prices. Getting this wrong could mean the end of your retirement plans for good.
I think I checked my Stocks and Shares ISA app about 20 or 30 times yesterday. I couldn’t believe what I was seeing. While the circuit breakers were firing off on the S&P 500 the same was happening in my brain. I couldn’t believe it. All those gains, wasted. All that slow and steady progress, down the drain. Disappeared in a puff of smoke.
Logic is in short supply right now. But if you don’t need the money straight away, why sell now? Panic-selling in the middle of a market crash is a bad idea. It’s also about the worst possible thing you can do for your future financial health.
If you’re sitting on paper losses — like most of us are — then that’s all they are. Losses aren’t losses until they’re realised. Selling now would make them real.
My plan from here on out is to stay the course. I’ll delete any financial apps on my phone for a while. That’ll prevent any really stupid decisions I’ll regret. I’ll keep adding spare cash to my ISA account, but sit on the sidelines and wait. It’s better to lose a tiny bit of the rise to be more sure that the stock markets are in recovery. Then you’ll see bargain share prices not seen in a generation. That could be a matter of weeks, or months ahead. But look back 10 years from now and you’ll be furious at yourself for not having bought more.
What to watch
Good companies with low debt will recover faster from this economic crash than those with hefty loans weighing them down. Those businesses that have relied on generous lines of credit to stay afloat could have to make redundancies. No doubt, earnings and profits will crater. And investors will flee to safer options. Do your research to identify the strongest prospects. Set up your watchlist and keep cash on hand.
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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.