As the stock market crash rages on, I don’t think it’s a good time to sell your stocks. Although this financial crash is likely to continue for some time, it will invariably have ups and downs. If you sell-out during a down day, you’ll more than likely come to regret it when the stock market finally rebounds.
I don’t advocate selling shares during a stock market crash because emotion isn’t a clear basis for decision-making. This is particularly important when considering quality companies.
If you’re following a long-term stock-buying process such as that encouraged by Warren Buffett and his mentor Benjamin Graham, then you should buy and hold for many years.
This means buying shares in top quality companies that can stand the test of time without being burdened by debt.
Avoiding danger in a stock market crash
Although the global stock market seems a scary and dangerous place, there are still bargains to be had. I also think it’s worth sitting tight and holding on to any shares you own in quality companies.
The Tesco share price outperformed the FTSE 100 in 2019 and I think this trend is set to continue in 2020. It hasn’t fared as badly as most FTSE 100 stocks in the current market crash. Today it’s down 13% year-to-date.
Tesco hasn’t always been a good share to own, but it’s become more attractive in recent years. Acquiring wholesaler Booker gave it access to hundreds of independent retailers and bigger margins.
Its massive database of consumer shopping habits gleaned from years of Clubcard metrics has given it an edge in providing what the customer wants. A recent consumer shift to plant-based diets, veganism and healthier food options made Tesco’s data status ever more apparent. The supermarket giant took full advantage of the shift with new product lines and careful marketing.
The Tesco share price’s defensiveness has further shone brightly in the past fortnight, as consumers resort to panic-buying sprees for food and household essentials.
Next is another British retailer that has defied the odds in recent years and outperformed its contemporaries on the high street. It’s also another FTSE 100 share I’d avoid selling.
The Tesco dividend yield is 2.6% and the Next yield is 4%. This return on investment eases the stress for income investors during periods of volatility. I also don’t think either of these dividends is at risk of a cut.
The Next share price is down 43% year-to-date, which is undeniably horrifying, but compared to its peers isn’t so bad.
The Joules share price is down 82% and Marks & Spencer’s share price has crashed 50% year-to-date. Laura Ashley has called in the administrators and Debenhams is requesting a five-month rent-paying holiday.
The important thing to remember is that Next is a good quality company with a healthy balance sheet and much to offer consumers going forward. Although its share price may continue to suffer in the interim, eventually it should recover and thrive again.
Undoubtedly there will be retail casualties along the way, but the stronger companies will weather the storm and come out the other side. With Warren Buffett’s wisdom as a guide, I think shareholders of Tesco and Next, should continue to hold.
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.)
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Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. 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.