Investors areunder siegeright now as share prices collapse, bond yieldsslump and cash turns negative. The great wealth massacrehas wiped 140bn off the value of UK blue chips in the last fortnight alone.
Panicky investors have driven rates on 10-year UK gilts to an all-timelow of 1.226%. Markets cantsee the Bank of England hiking interest rates until 2020. It looks likea full-blown crisis and many investors willunderstandably want to keep their heads down.
While thats an understandable reaction its also a wrongone that wastes the opportunities available. Times like this are a gift to investors, and you dont want to throw that giftaway. The FTSE 100 has shed nearly a quarter of its value since April 2015, which means if you buy an index tracker today youre getting a 25% discount on last yearsprice. This is the discount that keeps on giving: whether you hold the tracker for 10, 20 or 30 years, your holdingwill always be worth 25% more.
Come Out Fighting
The Fool repeats this message every time markets go intocrisis mode, because it takes constant repetition for the message to sink in. When share prices plunge, the fight or flight mechanism triggers and too manyinvestorsflee when they should march towards the sound of gunfire instead.
Most long-term investors learn to curb the desireto sell in the middle of a crisis. All that does is turn your paper losses into real ones, and leave you with the impossibledecision of when to re-enterthe market, a decision you will get wrong because timing stock markets is impossible.
But it takes a bold investor to pumpgood money into the stock market during bad times, as theres a chance its value will plummet almost instantly. Yet at momentslike these, fortune favours the brave. You haveto remind yourself that youre not investing for tomorrow, next week or even next year. You should onlyinvest in shares fora minimum of five years, preferably much, much longer, untiltodayscrisis isonly a vague memory.
Value at last?
Things look dark todayand mayget darker in the days ahead. Personally, Im glad of the sell-off, because markets had beendriven artificially high by loosemonetary policy. Nowvaluations look far more tempting, with oil giant RoyalDutch Shell trading at 6.9 times earnings, pharmaceutical firmGlaxoSmithKlineat 7.7 times and global bankHSBC Holdings at 8.8 times. If youre feeling truly brave, you could try stricken miner BHP Billiton at 7.8 times earnings. These are all roughly half the 15 times earnings typically seen as fair value (although theyre still risky, especially in the short term).
Share prices may have picked uptoday but the crisis has further to run. Please dont waste it.
Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended HSBC and Royal Dutch Shell.We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.