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The FTSE 100 is up 17%. Here’s how I’m investing in this phase of the stock market crash

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At its last close, the FTSE 100 was at 5,843. This is a 17% increase from the lowest point seen in the ongoing stock market crash. It is now almost back to levels last seen before the crash really moved into high gear on March 12 when it fell more than 10% in a single session. Although it remains well below February’s highs, the question that now comes to my mind is this: is the stock market crash over? 

Learning from past crashes

We don’t know yet and here’s why. I compared the FTSE 100 index’s performance in the 20 trading sessions since the start of the crash, with stock market crashes of the past. Going by past experience, there’s reason to be cautious. In 2008 too, the index gained a fair bit in the days following the sharpest single-day fall. But it wasn’t until a few months later, in March 2009, that it found its bottom. If that’s an example to go by, we can brace for some rocky times in the next few months. Or not. Consider the 1987 crash. It saw the sharpest fall in October, but the index had already hit its lowest by November. 

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In short, my point is this: it’s not always easy to tell what the FTSE 100 index bottom is. However, I do know when the stock market crash really starts. I also have a rough idea of how long it can take to hit rock bottom. Further, I know that it can take up to a couple of years or so before FTSE 100 finds its groove again. 

Investing in FTSE 100 growth stocks

As a long-term investor, this information tells me two things. One, my investing window to maximise capital appreciation. And two, my waiting period before I can start seeing growth in my investments. So how long is my investing window for the FTSE 100? If we go by the Wuhan example, the lockdown could last for two-and-a-half months. This means that if we are in lockdown until the start of June, we could continue to see market uncertainty for the next two months or so as economic activity stays muted. This in turn gives me the opportunity to invest at relatively low share prices.

All I have to do next is wait for around two years before I can start seeing the fruits of my investments. However, I still need to make judicious investment calls. I like high-quality FTSE 100 growth stocks. I’d most closely examine stocks that are trading at a sharp discount compared to their pre-crash levels. Airlines, for instance, have been hit hard by lockdowns. But, insofar as they are well run companies otherwise, I’d expect them to come back to health once the coronavirus crisis subsides.

Or I may go for safer defensive stocks. I’d be careful before investing in companies whose fortunes are tied to discretionary spending. Their demand may not bounce back in the foreseeable future.Whichever way I look, the moot point is that there are investing opportunities available, and I’m making the most of them now.

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Manika Premsingh 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.

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