People really don’t seem to be buying FTSE 100 shares right now.
The economic outlook is dire. Inflation isn’t down as much as hoped, and interest rates are almost sure to go up some more.
So it makes sense to steer clear of shares and wait until the outlook is brighter, right?
Wrong!
A better way
Well, I think that’s the wrong approach. And there’s a far better investor than me who always said the same.
I’m talking of Sir John Templeton, one of the most successful contrarian investors of the 20th century.
I make no apology for using this quote from him again, as I think it might be at the crux of one of the best opportunities to buy FTSE 100 shares ever.
In 1995 in Forbes, he wrote:
People are always asking me where is the outlook good, but that’s the wrong question. The right question is: Where is the outlook the most miserable?
He loved a good disaster, did Sir John.
Buy cheap shares
And he put his money where his mouth was too.
The outlook sure was miserable in 1939, at the start of World War II. So he borrowed $10,000 and put $100 into every US stock he could find that was priced at a dollar or less.
Now, I’d never borrow money to invest. Not only could I lose it all, I could end up with a bunch of debt to repay.
But the gamble paid off for Sir John, and in four years he’d quadrupled his money.
Being contrarian
When shares are on a bull run, we can all enjoy success and build up some nice cash.
That’s why I think the stock market is the best place to invest for the long term. Even if we just go with the crowds, the UK stock market has beaten other forms of investing hands down for more than a century.
But in gloomy times like today, we can surely do even better. Here’s another one from Sir John:
It is impossible to produce superior performance unless you do something different from the majority.
Against the crowds
Right now, I’d say that means going against the crowds and buying FTSE 100 shares while they’re out of fashion.
Sir John’s focus was on growth stocks. But I reckon the same approach can work just as well with dividend stocks. Or with any strategy an individual investor likes best.
So, on my shopping list, I have banks and housebuilders offering dividend yields of 5%-6%. And then insurers with forecast yields of 8%-9%.
Lots of big yields
In fact, today there are around 25 stocks on the FTSE 100 with dividend yields of 5% or more.
Isn’t there risk in buying shares that the big City folk don’t want? Well, yes, there is. The stock market might well have a poor second half this year, and shares could fall further.
But over the long term, UK shares have averaged around 7%-8% total returns per year. And Stocks and Shares ISA returns in the past decade have averaged 9.6%.
