Without much ado, the answer’s Yes. Here’s why.
No stock market crash lasts forever. It can last for up to a few years, yes. But forever? No. A look at stock market cycles shows clearly that from the mid-1980s to now, the longest FTSE 100 downslide has lasted less than three years. That was during the dot com bust at the turn of the century. Even the more recent financial meltdown in 2008 lasted for less than two years before the recovery began.
Buy during the FTSE 100 decline
Based on past trends, I think it’s realistic to expect that we could see some downtrend in the FTSE 100 in the coming months. The Covid-19 crisis is less than two-months old, and based on news and analysis, it appears that it will be a few months before we have a handle on the outbreak.
Even with all the policy measures in place, I suspect financial markets will remain highly susceptible to jerky movements during such time. We are one scary report – on coronavirus trends, poor financial results for key FTSE 100 companies, or a grim macroeconomic update – away from the index winding up in the red. Similarly, it’s a positive news story away from inching up. The balance right now, however, is tilted towards negative news.
If you are contemplating starting to invest in stock markets, this can sound scary, but it needn’t be. In fact, I think it’s a buying opportunity. Quality stocks are available at low share prices. As a long-term investor, your holding period will most likely outlast the FTSE 100 downtrend. Moreover, the gains from investing during a dip can be quite big.
A buying opportunity isn’t an indiscriminate buying opportunity, however. There are a number of FTSE 100 stocks I’d stay away from. For instance, the ones in the eye of the storm, like leisure travel company Carnival Corporation and airline carrier Easyjet, look risky. Share prices of both have risen considerably from their lowest points. But if the present situation persists for much longer, which I think it will, their fundamentals could be affected. That, in turn would impact their share prices going forward. I’d wait for signs of a pick-up in business activity before considering buying them.
Buying the safe
But I would consider buying other FTSE 100 shares. I like defensives quite a bit right now. There are three reasons for this. One, their business is likely to be impacted least by the crisis and the recession that will follow. Two, as a result, their share prices tend to be less volatile than others’. At this time, investing can be nerve wracking. If I want peace of mind as well, these are good bets. And three, more than one large, financially healthy, FTSE 100 defensive has proven to be a good long-term investment for capital growth. They’ve also provided a steady income stream even during recessions in the past.
Even in the hardest of times, they can be a way to inch forward, even if it isn’t the time to race ahead.
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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Carnival. 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.