A stock market crash is a wonderful time for long-term investors to buy bargain shares. When the FTSE 100 fell below 5,000, I went shopping for bargains. I’m glad I did, as the subsequent stock market recovery has already boosted their value by around 15%.
We at the Fool encourage people to buy bargain shares in the middle of a stock market crash, as you can grab your favourite companies at big discounts. Just don’t leave it too long before acting. If you hang around waiting for the next dip, share prices could recover further instead, and you won’t buy anything at all.
I’ve just seen research suggesting that many are holding back, hoping to go bargain hunting at even lower prices than today. More than half of us are waiting for the FTSE 100 to reach 4,500 before buying the dip, according to AJ Bell. In my view, that’s a risky strategy.
You cannot predict a stock market crash
I know because I’ve made that mistake myself. First, you cannot second-guess stock markets. Instead of crashing to 4,500, the FTSE 100 could just as easily extend its recovery and climb to 6,500. Then what do you do? You’ve missed your chance to buy bargain shares. It’s happened to me.
Even if the stock market does crash to 4,500, you could still squander your opportunity by waiting for it to fall even further, so you can buy even more bargains. Some 12% of those holding off from buying are waiting for the FTSE 100 to hit 4,000.
I’ve made that mistake too. Greed plays strange tricks on the mind.
The truth is that you’ll never spot the exact perfect time to buy bargain shares. That’s because share price movements are impossible to predict, especially in the middle of a stock market crash like this one. They’re hard to predict in a stock market recovery too.
Buy bargain shares before the recovery
Nobody can foresee share price movements, but you can take advantage of them after the stock market has crashed. The FTSE 100 is full of bargain shares at the moment. Focus on companies with strong balance sheets, minimal debt, and competitive moats.
Don’t wait for the index to fall to 5,000, 4,500, or below 4,000, because you have no idea whether it ever will. If you keep hanging on, the danger is you’ll never invest, and miss out on the wealth-building ability of stocks and shares which, over the long term, outperform every other asset class.
There are plenty of bargain shares to buy today. If we get another stock market crash and the FTSE 100 falls even further, there will be even more bargains. So take another shopping trip.
Don’t hold off for the perfect moment. We have a pretty good one right now.
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Harvey Jones 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.