Buying FTSE 100 shares in the midst of a stock market crash can lead to significant short-term paper losses. The index’s performance is, after all, highly dependent on daily news flow. And, as it’s impossible to predict how the coronavirus pandemic will progress, things could get worse before they improve.
However, the current valuations on offer across the FTSE 100 suggest now could be an opportune time to purchase high-quality businesses. In many cases, they trade at substantial discounts to their intrinsic values. Since the FTSE 100 has a successful track record of recovery, its performance over the next decade could be highly impressive.
The FTSE 100’s recent decline means the index is trading at a similar level to where it was over two decades ago. Although investor sentiment was very strong back then, and is very weak today, now could prove to be a highly attractive buying opportunity for long-term investors.
The index has a track record of experiencing booms and busts. Neither have thus far lasted in perpetuity. While the coronavirus pandemic is unprecedented, the FTSE 100’s past performance suggests the index will fully rebound from its recent crash. Therefore, buying shares today and holding them for the next decade, could yield high returns for investors.
Perhaps one of the most difficult aspects of buying shares today is the short-term risks facing investors. The FTSE 100 has fallen by as much as 35% since the start of the year. But it could experience further declines if news regarding coronavirus worsens. This may cause investors to experience paper losses on their portfolios. They could be sizeable over a short period.
As such, it could be worth focusing on high-quality businesses with strong balance sheets and wide economic moats. Although their share prices may fall in the short run, they’re more likely to survive the current economic downturn than some of their peers.
This could provide investors with greater confidence and optimism in their recovery potential. And it may make the process of buying undervalued shares today somewhat easier.
Furthermore, most investors aim to buy shares while they’re low and sell them when they’re trading at much higher prices. Generally, there must be negative news and heightened risks facing the world economy for share prices to offer good value for money. The news flow may be highly negative at present. But it presents the chance for investors to buy shares when they offer wide margins of safety.
Adopting a long-term focus regarding your portfolio could be crucial. The FTSE 100 could move lower in the near term, but its track record suggests a bull market is highly likely to follow the current bear market.
As such, now could be the right time to buy high-quality companies while they offer good value and hold them over the next 10 years.
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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.