If you thought you missed your opportunity to buy cheap UK shares when global stock markets crashed in March, don’t despair. There are still plenty of bargain stocks on the FTSE 100 today, and their numbers are growing as the index starts to slide again.
At the height of the first lockdown, the FTSE 100 fell below 5,000 on 23 March. Then the US Federal Reserve flooded the global markets with liquidity and stimulus, and the recovery was on.
The FTSE 10 jumped 20% and idled around the 6,000 mark for months. UK shares were still cheap, just not as cheap as they (briefly) were.
If you wish you’d screwed up the courage to buy dirt-cheap UK shares back in March, you now have a second chance as the index slides to around 5,750, the lowest level for five months. I suggest you don’t waste it this time.
The FTSE 100 is falling
The drip-drip of Covid-19 misery is finally having an impact on shareholder sentiment. Brexit is a further worry for UK shares. Right now, the chances of a skinny trade deal with the EU appear to have grown, which has strengthened the pound but, ironically, hit the FTSE 100. That’s because companies on the index generate three quarters of their earnings from overseas. That means they’re worth less when converted back into a stronger pound.
I’m not saying you can buy cheap UK shares today and enjoy the sunlit happy uplands tomorrow. The global pandemic and economic slowdown is still the biggest driver of stock market uncertainty, and that looks set to continue into next year. Markets will be volatile for some time to come.
What investors have to do at times like this is look beyond current worries, to several years into the future. History shows that stock markets always recover from a crash, given time. Any shares you buy today, you should aim to hold for years and years. That means at least five years but, ideally, much longer than that.
I’d buy cheap UK shares today
The world’s greatest investor Warren Buffett famously said that his favourite holding period is forever. That may be a little ambitious for most people, but I support the principle.
If you can hold on for the long term, then moments like today present investors with a fantastic opportunity. Of course you could wait, in the hope that share prices will fall further. The problem is, nobody knows what they’ll do. They might climb instead, and you’ll have missed your chance.
You have to choose your cheap UK shares carefully. Some sectors may struggle, even after the pandemic has passed. Bricks and mortar retailers face an existential struggle against e-commerce. The travel, leisure and hospital sectors are on the ropes. We may have reached peak oil demand, hitting the fossil fuel giants.
Not every cheap UK share will prove cheerful, so use your judgement. Look for companies with steady earnings, loyal customers, strong defensive moats, and healthy balance sheets. You can buy them at bargain prices today.
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.