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How I’d choose shares to buy in the 2020 market crash

The FTSE 100 dipped to 4,923 points Monday morning before pulling back. It’s standing at 5,010 as I write, but that’s at least above the lowest 2020 market crash level of 4,899, set a week ago.

Does it mean there’s some resilience at around the 5,000 level? I never pay much attention to the idea of ‘support’ levels, as they only seem to be transient things. Instead, I’d forget about the index, and concentrate on finding the best shares.

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My Motley Fool colleague Paul Summers has put together an easy-to-follow checklist for picking quality companies, and I wholeheartedly agree with everything he says. Here, I’ll add a few thoughts of my own.

Market crash victims

Warren Buffett’s exhortation to be “fearful when others are greedy and greedy when others are fearful” might be in many people’s minds right now. But I prefer his rule 1: Never lose money. Oh, and rule 2: Never forget rule 1.

Those rules might have been better employed before the crisis, but they’re still important now. They wouldn’t have prevented losses during the 2020 market crash, but they can reduce your chances of a wipeout.

I reckon the surest way to avoid buying into companies that could go bust in a market crash is to avoid debt. At least, keep away from companies with debt but not enough assets to cover it in emergencies.

Look at Premier Oil, whose shares have crashed by 85% since the Covid-19 pandemic struck. Premier is carrying huge debts, and the value of its assets has plummeted as a barrel of oil has plunged to $26. Some might see Premier as a recovery candidate now. I see it as a possible catastrophe.

2020 survivors

We could just buy the best in a sector. But identifying the best isn’t always easy. So here’s a suggestion – buy the biggest.

Thinking of an oil company? Royal Dutch Shell is the biggest in the FTSE 100. Yes, its shares are down 43% in the market crash, but that’s a lot better than Premier’s thumping great fall. Is there any realistic chance Shell will go bust? No. Does Shell have sufficient assets to survive the crisis and service its debt? I think Shell’s resilient response to the previous oil price crisis has proven that. Is Shell the best oil company to buy right now? I think so.

You might not like the look of banks at the moment, but HSBC is the Footsie’s biggest, and its share price is only down 10%. By comparison, shares in Lloyds Banking Group have lost 44%. As it happens, I see both as potential buys now, but Lloyds carries a lot more risk.

Don’t obsess over ‘safety’

Finally, while the above two suggestions would, hopefully, identify relatively safe stocks, I wouldn’t spend too much time looking for sectors that are traditionally considered safe. At least, not in the depths of the 2020 market crash.

That would include supermarkets, and sure, Tesco shares are down only 18% and it would have been a good buy on that score. But we mustn’t lose our long-term focus, and I wouldn’t switch to a share now that I wouldn’t have bought before the market crash.

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Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended HSBC Holdings, Lloyds Banking Group, and 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.