“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful” – Warren Buffett
History suggests that stock market crashes can be fantastic investment opportunities for long-term investors. In the past, global equity markets have always recovered from short-term setbacks. That means those who were brave enough to invest during periods of uncertainty have always been rewarded over time.
With stock markets having fallen significantly in recent weeks, I believe another great buying opportunity is emerging for long-term investors. The FTSE 100 index is now down nearly 30% from its 2020 high. It’s currently trading at a level not seen since 2012. Meanwhile, many stocks within the blue-chip index are now trading at bargain valuations and offering huge dividend yields. As such, if you’re willing to invest for the long term, I think there’s a good chance you’ll be rewarded.
The current stock market crash is the result of the economic uncertainty associated with the coronavirus (Covid-19). This terrible illness (which is undoubtedly a tragedy from a human perspective) is creating havoc around the world. Businesses in nearly every industry are affected in some way or another. And company profits and economic growth are likely to be impacted significantly in the short term.
Near-term forecasts don’t look good. Just last week, analysts at Deutsche Bank halved their UK growth forecast for 2020 to just 0.5%. That’s a post-Global Financial Crisis low and is due to the outbreak. Meanwhile, a number of economists are saying a global recession is likely. It’s no wonder that share prices have fallen sharply.
Economic uncertainty is elevated right now due to the unknown impact of Covid-19. But I do not expect this high level of uncertainty to last forever. Eventually, the world should recover from the coronavirus. And when this happens, growth should pick up and global stock markets should recover as well, as they have in the past. This means that those investing now, while uncertainty is high and panic is in the air, should be rewarded in time.
Of course, it’s important to realise that coronavirus uncertainty could persist for a while longer. Perhaps a few more months, or maybe even into next year. This means that stocks could fall further. If things continue to get worse, major stock market indexes such as the FTSE 100 and the S&P 500 could potentially fall another 5%, 10%. They could even drop 20%. Stocks that look cheap now may become even cheaper.
So this is my advice if you’re considering investing now. Do what I’m currently doing and drip-feed money into the market over time. That way, you’ll average out your entry points. If stocks do end up falling further, you’ll be able to take advantage of the lower share prices on offer.
It’s ugly out there…
The threat posed by the coronavirus outbreak has spooked global markets, sending stock prices reeling.
And with the Covid-19 virus now beginning to spread beyond of China and Italy, it seems very likely that the bull market we’ve enjoyed over the past decade could finally be coming to an end.
Against such a backdrop of market worry, it’s little wonder that many investors are starting to panic. (After all, nobody likes to see the value of their portfolio fall significantly in such a short space of time.)
Fortunately, The Motley Fool is here to help, and you don’t have to face this alone…
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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.