You never forget your first stock market crash. It can be an earthshaking event. At the time, it might even have felt like the end of the world. Later, with the benefit of experience, you will discover that it was nothing of the kind. Stock market corrections happen from time to time, because that’s what stock markets do. Investors who can keep their heads and take advantage soon learn to enjoy them.
Crash! Bang! Buy!
Most newbie investors squander their first stock market crash. They fail to seize advantage of the opportunity to pick up shares at reduced prices, because they are too busy running for cover. Later, when the dust has settled, they wish they had kept their nerve. Stock markets often rebound far faster than anybody expects, and all the shares they should have bought at knockdown prices don’t look like bargains any more.
You never forget your first stock market fightback either. It can be more painful than the crash, as you realise what a fabulous buying opportunity you have just missed. And you’ll be kicking yourself even harder if you do something daft, like panicking and selling up at the bottom of the market. That inflicts a double blow on your portfolio: you will have crystallised your paper losses at the worst possible time, while simultaneously locking yourself out of the subsequent recovery.
Fools Rush In
Every time stock markets correct, we at the Fool dash about crazily telling anybody who will listen that now is the time to buy top stocks. We have to make such a noise because your instincts are screaming at you to do exactly the opposite. We all like to buy clothes, food, cars and holidays at discounted prices, but somehow feel more comfortable buying shares when they cost more. The result is that all too often we end up paying over the odds.
The current market crash is an unforgettable opportunity to buy shares. Lloyds Banking Group, for example, is the most traded stock on the FTSE 100. Today it is 20% cheaper than it was just three months ago.
Oil giant Royal Dutch Shell is also down 20% over three months, thanks to the oil price crash. If oil recovers later this year, as many expect it will, Shell’s share price will soar. But you should only invest if you plan to hold for the long term — at least five years and preferably longer — to give the stocks time to recover.
Not So Risky
If the banking and oil sectors are too risky for you right now, there are other more solid opportunities. Income machine GlaxoSmithKline has largely shrugged off market panic yet still trades at a low valuation of less than eight times earnings and yields almost 6% income a year. Utility giant National Grid is actually up 5% in the last six months, and yields 4.55%.
As share prices crash all around, now is the time to start searching through the rubble for great buying opportunities. Choose your stocks wisely, and you should remember the current stock market meltdown in a nice way. You might even start looking forward to the next one.
