The FTSE 100’s recent market crash may not seem to be a buying opportunity at the present time. After all, news flow regarding coronavirus may, sadly, worsen before it improves.
However, the index’s valuation suggests that investors are factoring-in the negative economic impact of a lockdown. This could mean there are excellent buying opportunities. How so? Due to low valuations that have not been seen since the last bear market.
As such, now could be the right time to buy a diverse range of stocks. Do so and you could benefit from a likely recovery in the FTSE 100’s price level over the coming years.
Buying FTSE 100 shares could lead to paper losses in the short run, of course. News regarding the number of coronavirus cases in the UK and around the world may continue to be downbeat. And it may even get worse before it improves. As such, investor sentiment is likely to be changeable, with share prices having the potential to come under severe pressure at times in the coming months.
Previous bear markets have shown similar trends. Even if fiscal and monetary policy stimulus is enacted, it can take time for confidence among investors to improve. Therefore, buying shares today may not return a quick profit. As such, adopting a long-term viewpoint could be crucial.
Over the long run, a recovery in the FTSE 100’s price level appears to be very likely. It last encountered a bear market of this nature over a decade ago during the financial crisis. Back then, a recovery seemed to be in severe doubt for a prolonged period of time. However, the index did ultimately move higher, and even went on to record new highs in the years following its crash.
The same outcome cannot be guaranteed, but is very likely. The FTSE 100 has been able to overcome a wide range of crises and bear markets in its past to post strong gains in the following years. Investors who have been able to overcome the short-term risks facing the index have generally posted strong returns in the years following bear markets. Buying shares now could provide you with the opportunity to do likewise.
A logical approach
Buying a wide range of shares and not seeking to find the very bottom of the current bear market could be a sound strategy. Diversification reduces risk. This could be very important due to coronavirus being likely to negatively impact some industries more than others.
Similarly, buying gradually throughout the current bear market could be a worthwhile move. The FTSE 100’s potential to move lower in the short run may mean there are even more attractive price levels ahead. As such, identifying high-quality stocks at low prices and gradually investing in them over the coming weeks and months may lead to high returns in the long run.
Peter Stephens 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.