The stock market crash in March was a real shocker. The FTSE 100 fell by a third, bottoming out at just below 5,000 on 23 March.
At the height of the turmoil, many investors panicked. Fearing shares would fall even further, they sold everything they possibly could.
That’s a natural human reaction, but a disastrous mistake for an investor. A stock market crash isn’t the time to sell shares. It’s the time to buy. If you want to build a million-pound portfolio for your retirement, you need to stay invested at times like these.
As famed investor John Templeton said: “Don’t panic. The time to sell is before the crash, not after.”
To make a million, you shouldn’t sell even before a crash either. You should stay invested until the time comes when you need to generate retirement income from your portfolio.
Stock market crash opportunity
Revising Templeton’s quote, I’d say the best time to buy shares is after the crash. Or right in the middle of it. That way you can pick up your favourite companies at dramatically reduced prices. Then simply hang on for the recovery. It’ll come. All you have to do is be patient, while reinvesting all your dividends for growth.
If that worries you, remember this quote from George Soros: “The worse a situation becomes, the less it takes to turn it around, the bigger the upside.”
There was a lot of upside on 23 March. The FTSE 100 rose about 30% in the subsequent recovery. If you missed the opportunity to buy shares in the March stock market crash, you may soon have a second chance.
The scary thing is that Covid-19 hasn’t been defeated. Worldwide, it’s killed more than half a million in just seven months. The number of cases now tops 12m. Some people worry about a second wave. Others point out that the first wave isn’t over yet.
Start searching the FTSE 100 today
As I write this, the FTSE 100 is slipping back towards 6,000. It’s now more than 20% below its mid-January peak of 7,674. That means you already have a buying opportunity today. A second round of the stock market crash would give you an even better one.
Don’t fear the next crash. Instead, make maximum use of it. Start scanning the FTSE 100 and FTSE 250 for buying opportunities. Brave, contrarian investors may want to use the bear market to take a punt on ravaged industries, such as travel and tourism. Personally, I wouldn’t do that now.
I would target solid companies with strong balance sheets, loyal customers, minimal debt, and a clear route out of the crisis. Positive dividend prospects would also help.
There’s no getting away from it. Stock market crash round-two could be brutal. It could also be a massive contrarian buying opportunity. If you’re investing to make a million-pound portfolio, get ready to seize the moment.
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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.