After months of rising investor positivity and steady price gains, the UK stock market has suddenly turned nasty. And after this sudden retrace, this could be a great time to buy shares.
At its all-time high on 16 February, the blue-chip FTSE 100 index peaked at 8,047.06 points. As I write, it stands at 7,402.40. That’s a drop of almost 645 points (-8%) in a month.
Here’s how the index has performed over six timescales:
| One day | -3.1% |
| Five days | -6.7% |
| One month | -7.4% |
| Six months | +1.7% |
| One year | +3.2% |
| Five years | +3.3% |
This clearly shows the FTSE 100’s sudden retreat over the past four weeks. Even so, the index is still mildly positive over six months, one year and five years. Also, the above returns exclude cash dividends, which would add perhaps 4% a year to these figures.
Panic on the streets of London (and New York)
The event that spooked the London market was the collapse of two mid-sized American banks. Silicon Valley Bank folded on Friday, while US regulators took control of Signature Bank on Sunday.
Very quickly, panic over the first US bank failures since the global financial crisis (GFC) of 2007-09 swept New York, before moving on to other major stock markets.
As a result, the S&P 500 index is down 6.9% in a week and 9.4% over one year. Meanwhile, the tech-heavy Nasdaq Composite index has lost 6.2% in a week and 12.6% over one year.
In the long term, this is just another blip
Having bought shares for 37 years, I recall all the major market crashes. These include the October 1987 crash, the 2000-03 dotcom bust, the aforementioned GFC, and the spring 2020 plunge.
In my view, Mr Market’s latest tantrum is just another storm in a teacup. In 10 years’ time, an 8% one-month drop in the FTSE 100 will be a mere blip on the index’s long-term chart.
What’s more, as an old-school, veteran value investor, I’m unafraid to buy shares while prices are plunging. Indeed, as a natural contrarian, I’m happy when going against the herd. When panicked investors are selling and rushing to the exits, I buy for the long game.
I’d love to buy shares now
When prices fall steeply, it’s usually because investors vote with their feet and scramble to sell shares. But every share sale involves both a seller and a buyer. And I’d be happy to be on the buying end of these panicked trades.
Indeed, I see deep value in several London market sectors today. In particular, I see many bargain shares on sale in industries such as asset management and insurance, banking, oil and gas, mining, and telecoms. There are some standout buys out there as far as I’m concerned.
I’d be racing to buy shares right now, but for one thing. I’m actually quite short of cash at hand. And for tax reasons, I’d much rather wait until the new tax year starts on 6 April before buying more stocks.
In summary, until my next pile of cash or dividend payout arrives, I’m sat on the sidelines watching these bargains pile up. It’s frustrating, but I know there will be plenty of other opportunities to buy the dips!
