The stock market crash has knocked 7.5% off the FTSE 100 this morning, and it now trades just below 5,000.
So how did I respond to the increasingly dire-looking situation? I put my money where my mouth is, and did what I’ve been suggesting readers consider doing. I bought shares. In this instance, investing £1k in a FTSE tracker.
If you don’t take advantage of moments like these, you may regret it one day. It isn’t easy going against the crowd though, especially when they’re stampeding for the exits. I reckon this stock market crash has further to run, so why did I act today?
Every investor has to accept that they’ll never call the exact bottom of the market. Anybody who does will have to put it down to luck rather than judgement. Markets are impossible to time, given all the variables and uncertainties.
Stock market crash is also an opportunity
Yet I took a chance because 7.5% in a day is an almighty drop. It seems to have been driven by the US Federal Reserve’s move to slash interest rates to zero. Investors were worried that the Fed knew something they didn’t.
They also know the impact will be limited, as the recession will happen due to a collapse in demand as countries close and people self isolate. A drop in mortgage rates is hardly going to persuade shoppers to go on a spending spree, given current uncertainties.
Once markets have digested the news, they may calm down a little. Some kind of relief rally is likely. I won’t buy into that.
There are so many attractive blue-chip companies on the market trading at fire-sale prices. I’ve been waiting for a moment like this, ever since the FTSE 100 and other global indices soared in the wake of the financial crisis.
I took advantage of that stock market crash too, but wished I’d been bolder. I don’t want to kick myself this time.
The FTSE 100 will remain volatile
If you’re buying individual companies for your Stocks and Shares ISA, look for those with strong balance sheets, healthy cash flows, loyal customers and minimal debt. I took the tracker route this time. Next time I’ll probably target individual stocks.
I’m aware that in a few days I might look silly. This stock market crash could have a lot further to run, and my £1k could be worth a fair bit less.
If that happens, I’ve a cunning plan. I will invest another £1k and pick up more shares at the new reduced prices. If the FTSE 100 dips even further, then in I go. There’ll be more buying opportunities.
I plan to leave the money invested for 15 to 20 years at least, by which time I hope the coronavirus is just a nasty memory. And the opportunity to buy the FTSE 100 at below 5,000 looks like the investment of a lifetime.
But you need to get in before the crowd catches onto this ‘sleeping giant’.
Harvey Jones has no position in any of the shares 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.