The FTSE 100 market crash of 2020 has caused significant losses for many investors. Although the market has rebounded to some extent from its March lows, it is still significantly down on its 2020 starting price.
In the short run, further falls could be ahead. The UK and global economies may experience severe recessions in the coming months that cause the profitability of many FTSE 100 companies to decline.
However, buying when such risks are present has historically been a sound means of positioning your portfolio for long-term growth. As such, going against the investor consensus and purchasing high-quality shares at low prices could be a worthwhile move.
Historic FTSE 100 performance
The FTSE 100’s performance is, like many assets, filled with periods of booms and busts. The index may have delivered an annualised total return in excess of 8% since its inception in 1984, but it has done so in a volatile fashion.
Investors who have previously bought while the index has been enjoying strong returns in a boom period may have generated impressive returns. However, other investors who bought during bear markets and downturns could have produced even higher returns than their peers.
Certainly, the latter strategy is riskier in the short run. But, over the long term, the FTSE 100’s past performance shows that it has always recovered from its challenging periods to post new record highs. Therefore, buying when risks are high and share prices are low could be the most effective means of generating strong returns.
Buying high-quality shares
Of course, surviving downturns, bear markets and recessions is key to obtaining high returns in the long run. If your holdings do not survive the short run, they will not be in a position to benefit from a subsequent market rally.
Therefore, it is crucial to buy high-quality FTSE 100 shares. In other words, those companies that have solid balance sheets, strong market positions and the right strategies to adapt to changing market conditions. They are more likely to take part in the probable bull market that will follow the current challenges facing the world economy.
Fortunately, identifying such companies is much easier now than it was in previous recessions and bear markets. Annual reports are freely available online, while frequent investor updates provide guidance as to which businesses can survive economic difficulties.
Ignoring market noise
Buying shares when other investors are downbeat about their prospects can be a challenging process. It may require a significant amount of self-discipline to focus on facts and figures, rather than the opinions of your peers.
However, by adopting a long-term focus and buying high-quality stocks while they trade at low prices, you could improve your financial prospects. You may be in a strong position to benefit from a market rally. You see, the track record of the FTSE 100 suggests a rally is likely to occur after the current challenges have passed.
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.