The Covid-19 FTSE 100 crash has so far been one of the worst in living memory. Since the start of 2020, the index has lost 25% of its value.
To make matters worse, FTSE 100 companies are slashing their dividends. Housebuilders and banks are among the first to suspend their payments in order to preserve capital during the market crash. But even though I’m losing out on some dividends myself, I think that’s exactly what companies should be doing now.
FTSE 100 crash to worsen?
In my view, companies are rarely responsive to the need to reduce dividends. They tend to prioritise paying this year’s cash ahead of longer-term liquidity, and I think that’s a mistake. Then when a market crash comes round, so many face a cash crisis.
At this stage in the FTSE 100 crash, the index is maintaining some semblance of order. That’s way better than all-out panic, but I do wonder if the market’s typical short-term outlook is making for too much optimism?
Though it did dip briefly below 5,000 points in March, the FTSE 100 has been holding steady at around 5,500 to 5,700 for some weeks now. And, frankly, I’ve found that surprising. I expected a bigger market crash.
The thing is, when I read about the coronavirus crisis, I keep seeing talk of short-term timescales. Got symptoms? Isolate for seven days. In a super-high-risk group? Isolate for three months. Will it really be gone in three months? I doubt it.
Then we hear that curves are starting to flatten. And even in Wuhan, where the virus originated, folks are being allowed out again. And when I talk to people here (on the phone or online, not in person), I get the feeling they think it’ll all be over relatively soon. But I can’t see the market crash ending quickly.
Lockdown won’t kill the virus, and we surely won’t be safe until either we have a vaccine or enough people have been infected to achieve herd immunity. And I think that could take six months, a year, maybe even longer. If I’m right, I think a further FTSE 100 crash could be inevitable.
So with my pessimistic head on, what am I doing from an investing standpoint? I remain unshaken in two key convictions.
Where’s the bottom?
I say we should still, even now, be thinking of the long term when we make our investing decisions. And even if I expect more short-term pain, I remain totally convinced that in the longer term things will get a lot better. And I’m as certain as I can be that any quality shares I buy now will be worth considerably more in five years time, FTSE 100 crash or not.
I’m also convinced that trying to time the bottom in a market crash is a mug’s game. In my younger years I used to try to get the timing right in my buys and sells, but my success rate in picking tops and bottoms was never better than random. And I’ve never seen anyone who can reliably time the market, though I have seen plenty wasting cash trying to do it.
So my FTSE 100 crash strategy? It’s the same as my regular long-term strategy. Just keep dripping cash into an ISA or SIPP, and buy individual shares when they look good value.
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