UK share prices are sliding again on Monday as concerns over the economic recovery worsen. Fears of a fresh stock market crash are rising as financial markets across the globe plummet.
Take the FTSE 100 for example. Britain’s blue-chip stock index slumped at the end of last week and this morning fell to six-week lows below 7,340 points.
What’s caused the carnage?
An escalating Covid-19 crisis in China has caused stock markets to slide again today. Mass testing in Beijing has been reintroduced and fears over fresh lockdowns are dominating stock markets today.
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As Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, commented: “There is concern that prolonged lockdowns will hit employment and lead to a sharp slowdown in growth as well as sparking fresh shipping logjams and supply chain issues.”
Worries about how rocketing inflation will hit global growth are meanwhile also damaging market confidence. Speculation over how central banks could respond to these inflationary pressures is also damaging UK share prices. A string of harsh rate rises by the US Federal Reserve in particular could prove damaging for economic growth.
Is a stock market crash coming?
Trying to predict how stock markets will perform in the near-term is tough at the best of times.
However, the number of economic threats — and the fragility of market confidence — makes forecasting share price movements particularly difficult today. Though it’s my opinion that investors should certainly prepare themselves for a fresh stock market crash.
I’m certainly preparing myself for such an eventuality. Though I’m not selling the shares I own and running for the hills as some might be doing now.
No, instead I’m doing research on UK stocks that I’d like to buy if they slump in price. As someone who invests for the long term, I’ll use severe volatility in stock markets as a dip-buying opportunity.
This is a tactic I’ve used to great effect in the past. Tritax Big Box and Clipper Logistics, for example, have soared in price after I bought them following the 2020 stock market crash.
Thinking like Warren Buffett
There’s no guarantee that such dip-buying will definitely pay off, however. Broader economic, and company-specific, problems could emerge to actually drive a share price lower.
But there’s a wealth of evidence that shows how buying shares after market crashes can be an effective way for me to build my wealth.
Warren Buffett’s most famous piece of advice is to “be fearful when others are greedy and be greedy when others are fearful.” And he has famously made billions over the years from playing the stock market!
Over the long term, the average stock investor tends to enjoy an annual return of around 8%. So the possibility of more share market turbulence isn’t denting my investing appetite.
If the stock market crashes again I’ll be waiting to pounce on some bargain shares.
