As I write, the FTSE 100 is trading above 6,000. If it closes the day at this or higher levels, it would be the first time since early March that it has. Since the time that it dropped to its lowest late last month, the index has been making gains. It’s now up 20% since then.
Buying at the bottom
To me, this clarifies a single point: stock market crashes aren’t the time to panic-sell. They are the exact time to buy. As investing guru Warren Buffett says, “Widespread fear is your friend as an investor because it serves up bargain purchases”. Most, if not all FTSE 100 companies saw a sharp reduction in share prices then, but have managed to come back to pre-crash levels.
A case in point is the FTSE 100 fashion retailer JD Sports Fashion (LSE: JD), which joined the index only last year after making huge price gains. It was also the biggest gainer among all FTSE 100 shares last year. It was on my investing radar for some time, and the stock market crash was the perfect opportunity for me to invest in it. I didn’t manage to buy it when it hit its rock-bottom, but if I had, my investment would already be up by more than 78%.
Counting on FTSE 100 cyclicals
As a long-term investor, however, I’m not fretting. My goal is less to time the market (although, it’s quite desirable to buy stocks when they hit their lowest) and more to invest in quality FTSE 100 shares with a long-term perspective.
And I believe that JD Sports Fashion is one of them. It caters to the growing demand for athleisure wear, which goes hand in hand with rising health consciousness. So far, it has done well to capitalise on the trend. It’s true that as a cyclical stock, it could take quite the beating if the economy goes into a sustained slowdown. But that’s true for any cyclical stock.
In fact, that’s one reason to buy cyclicals now. Share prices of defensives, especially FTSE 100 healthcare companies’ shares, fell far less and have rebounded quickly. On the other hand, cyclicals like JD are still far from the highs they saw earlier this year. At its last close, it was a whole 68% lower than that during the high point seen earlier in 2020. This gives me an indication of where it can go, even if not in the short term.
What I’m doing now
In fact, in the short term, investors can brace for uncertainties. In a Covid-19 update last month, JD mentioned that its closed stores “contribute substantially”. But that was to be expected. I reckon that as first stores reopen and then spending comes back on track, it will perform better. I’m holding on to this FTSE 100 share for the next few years at least.
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Manika Premsingh owns shares of JD Sports Fashion. 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.