A sense of panic is gripping global stock markets, and share prices are falling across the board. People are asking themselves: “Should I sell my shares now?”
It might seem like a perfectly legitimate question given the scale of the carnage. Overnight in Asia, Japan’s Nikkei index collapsed more than 12.4%, and endured its largest daily points drop in history.
In London, the FTSE 100 has dropped a milder 2.3% in start-of-week business. But it’s fallen below the critical 8,000-point level, an event that itself could prompt further losses.
So what should UK share investors like me do next?
So what’s happened?
Today’s slump hasn’t come out of the blue. Worries over a fresh tech bubble — similar to the dotcom crisis of 25 years ago — have risen sharply over the past month, causing the earlier sector rally to run out of stream.
In this case, rising doubts of the profitability of artificial intelligence (AI) has caused industry giants like Nvidia and Microsoft to nosedive.
Elsewhere, the Federal Reserve’s decision to hold interest rates last week has also disappointed investors who were hoping for an growth-boosting cut.
Finally, a stream of poor economic data from the US has spooked the market. This came to a head on Friday, when worse-than-predicted jobs data supercharged fears of a possible recession.
Thinking long term
Stock market corrections are scary things. It can be tempting to sell everything and head for the hills when one’s shares portfolio is plummeting in value.
This is why it’s important to remain calm, and remember that successful investing usually requires a long-term approach. At times like these, I think about billionaire investor Warren Buffett‘s observations on stock market slumps and their aftermath.
He sagely noted that “in the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”
History shows us that economic shocks are nothing new. Yet stock markets always recover strongly.
Here’s what I’m doing
For this reason, I have no plan to sell any of my shares today. In fact, as Warren Buffett might also be doing, I’ll be looking to add more stocks to my portfolio. He famously said that “whether we’re talking about stocks or socks, I like buying quality merchandise when it is marked down.”
I’m actually building a list of beaten-down stocks to buy. And FTSE 100-quoted M&G (LSE:MNG) is near the top.
The financial services giant has sunk 8% in value in just a week. And so it trades on a forward price-to-earnings (P/E) ratio of 9.4 times.
At the same time, its dividend yield has rocketed to 10.3%.
Profits at M&G could well slump if the global economy cools. But as I say, I buy shares with a long-term view. And the company’s recent price drop makes for an attractive entry point.
I believe earnings here might soar over the next decade as demand for savings and pensions products leap. If I’m correct, M&G’s share price could soar from today’s levels.
There’s no guarantee markets will rebound, of course. But history shows us that moments like this are a great time to buy shares, not sell them.
