If the stock market crashes tomorrow, I won’t be down in the dumps. If it rallies, I won’t throw a party. I’ve long since given up worrying over where the FTSE 100 goes from day to day. It’s something I have no control over, so I just sit back and enjoy the show.
Anybody who does fret about day-to-day stock market movements needs to take the proverbial chill pill. Investing is a long-term process, the short-term ups and downs don’t signify that much.
Obviously, I want my portfolio to climb over time. Yet I accept that over my working lifetime, I’ll endure plenty of lows along with the highs. Otherwise I’d simply stick my money into a savings account. Yet I wouldn’t sleep easily if I did that. I’d have restless nights knowing that my money wasn’t working half as hard as it would be in shares.
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Good time to shop for shares
Cash offers a better return than it did, with best-buy savings bonds paying up to 6% a year. That’s still below inflation, though, which was 6.8% in July. Also, when interest rates peak and fall, savings rates will swiftly retreat. The stock market is likely to go the other way.
Given my acknowledged helplessness in the face of stock market volatility, how do I respond? By purchasing shares whenever I have a bit of cash at my disposal and spot a good buying opportunity. There are plenty today.
The FTSE 100 has disappointed this year, falling 1%. Measured over 12 months, it’s up just 1.73%. That doesn’t bother me. It simply means there are more bargains out there, and I’ve been taking maximum advantage.
Typically, I look for companies with solid revenues, a strong balance sheet, loyal customers and a high defensive ‘moat’ against rivals. It’s even better if they’re cheap and offer high yields, as is the case with five of my recent FTSE 100 purchases.
| Stock | One-year performance | Dividend yield | Price/earnings ratio |
| Glencore | -9.58% | 8.27% | 3.77 |
| Legal & General Group | -16.6% | 8.95% | 5.57 |
| Rio Tinto | 2.31% | 8.42% | 7.38 |
| Smurfit Kappa Group | 9.26% | 4.04% | 8.19 |
| Taylor Wimpey | 7.24% | 8.31% | 6.00 |
As my table shows, three of my five picks have fallen over 12 months. The two that have grown, Rio Tinto and Smurfit Kappa Group, were down when I bought them. While I can’t predict a stock market dip, I can take advantage by hoovering up shares that have sold off as a result.
I’m reinvesting all my dividends
All five are cheap, trading at well under 10 times earnings (a figure of 15 is seen as fair value). Four of them yield more than 8%, which is an astonishing rate of income that smashes cash. I expect all five to rally when the stock market recovers (although Smurfit has been knocked by news that it plans to list in the US, which I hadn’t foreseen).
I won’t complain when the market recovers. I’ll also be relaxed if it doesn’t, as my reinvested dividends will buy more shares until the FTSE 100 gets its mojo back. This also allows me to buy more shares while they’re cheap, and wait for the market to swing my way. Of course, my individual picks could continue to fall. But history shows that share prices tend to recover from a dip, we just can’t say when.
