There are warning signs flashing all over that all is not well in the health of global markets.
Over the past 12 months, stocks and shares have been able to shake off fundamental weaknesses, and investors appear to have ignored classic signals that a global slowdown was on the way.
The inversion of the US Treasury yield curve? Ignored. Charts showing the end of a bubble-like expansion? Ignored. Rising prices in flight-to-safety assets like gold, silver, and platinum? Ignored.
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But it seems now that investors are waking up to the long-term problems in global supply chains that the coronavirus poses. China is the world’s manufacturing centre. If it goes dark, companies all over the world will suffer badly. And with interest rates at historic lows, banks don’t have much ammunition to help prop up markets if things continue to go downhill.
Buy opportunity
Certain stocks are more fragile than others to this situation. Those heavily reliant on tourism, like British Airways-owner International Consolidated Airlines Group (LSE:IAG) and Easyjet (LSE:EZJ) have already been badly bruised.
Newer investors who have never lived through a real downtrend might now be scared away from buying up shares. I’d say that’s a schoolboy error.
Right now I am buying the shares I like best at knock-down prices.
That includes FTSE 100 insurance giants Aviva and Legal & General, high-profit and high-growth AIM-listed success stories Team17 and Frontier Developments, high-yield renewables funds like Greencoat UK Wind and Bluefield Solar Income Fund, and undervalued diversified tech funds like the Scottish Mortgage Investment Trust.
I believe in the long-term health of these businesses. Crucially, my view on this hasn’t changed, even if the price I’m paying now is lower than it has been in recent memory. I’m being greedy when others are fearful.
Warren Buffett says buy
Speaking to CNBC as stock markets plummeted, the world’s greatest investor Warren Buffett reiterated his long-term value outlook, saying: “If you’re buying a business you’re going to own it for 10 years, 20 years, or 30 years. You don’t buy or sell your business based on today’s headlines“.
The billionaire added: “If it gives you a chance to buy something that you like and you can buy it even cheaper it’s your good luck, basically.”
Short-term pain, long-term gain
Investing for the long term comes with quite the dichotomy: you’re pleased when the value of your portfolio rises, but higher share prices means it is more expensive to buy more of your favourite stocks.
If you’re planning to ride out the storm — and I’d counsel that this is your best shot at protecting your wealth — then weaker markets and falling stock prices mean there is a temporary opportunity for investors to pick up shares on the cheap.
When the dust settles on the other side — however long that takes — you will have a bumper portfolio of quality stocks and shares with a lower average price paid, which makes your future gains all the more impressive.
