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After months of positive investor sentiment and steady valuations, the UK stock market has suddenly taken a turn for the worse. And after this sudden retrace, this could be a good time to buy stocks.
At the highest on February 16, blue-chip FTSE 100 The index peaked at 8,047.06 points. As I write, it is 7,402.40. The drop is almost 645 points (-8%) in a month.
Here’s how the index has performed over six time scales:
| One day | -3.1% |
| Five days | -6.7% |
| One month | -7.4% |
| six months | +1.7% |
| A year | +3.2% |
| five years | +3.3% |
This clearly shows the sudden retreat of the FTSE 100 over the past four weeks. Even so, the index is still slightly positive for six months, one year and five years. In addition, the above results do not include cash dividends, which would add 4% annually to the figure.
Panic in the streets of London (and New York)
The event that rocked 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 Friday.
Very quickly, panic over the first US bank failure since the global financial crisis (GFC) of 2007-09 hit New York, before moving on to other major stock markets.
As a result, the S&P 500 the index is down 6.9% over the week and 9.4% over the year. Meanwhile, in tech-heavy Nasdaq Composite the index has lost 6.2% in the week and 12.6% over a year.
In the long run, this is just another blip
After buying stocks for 37 years, I remember every major market crash. These include the October 1987 crash, the 2000-03 dotcom bust, the aforementioned GFC, and the spring 2020 plunge.
In my opinion, Mr. Market’s latest tantrum is just another storm in a teacup. In 10 years’ time, an 8% monthly decline in the FTSE 100 would be the only thing on the index’s long-term chart.
What’s more, as an old, veteran value investor, I’m not afraid to buy stocks when prices are rising. Indeed, as a natural contrarian, I love it when I go against the herd. When investors panic sell and rush out, I buy for the long game.
I like to buy stocks now
When prices fall, it’s usually because investors choose to exercise their legs and sell stocks. But every stock sale involves a seller and a buyer. And I would love to be on the back end of this panic trade.
Indeed, I see deep value in some sectors of the London market today. In particular, I see many cheap stocks being sold in industries such as asset management and insurance, banking, oil and gas, mining, and telecommunications. There are some standout buys out there as far as I’m concerned.
I’m going to race to buy stocks now, but one thing at a time. I’m actually quite short on cash in hand. And for tax reasons, I prefer to wait until the new tax year starts on April 6th before buying any more shares.
In short, until the next pile of cash or dividend payment comes, I’m sitting on the sidelines watching this offer pile up. It’s frustrating, but I know there will be many more opportunities to buy dips!
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