You never forget your first stock market crash. Itcan be an earthshaking event. At the time, itmight even have feltlike the end of the world. Later, with the benefit of experience, you will discover that it was nothing of the kind. Stock market corrections happen from time to time, because thats what stock markets do. Investorswho can keep their heads and take advantagesoonlearn to enjoy them.
Crash! Bang! Buy!
Most newbie investorssquandertheir first stock market crash. They fail to seizeadvantage of the opportunity to pick up shares at reduced prices, because they are too busy running for cover. Later, when the dust has settled, they wish they had kept their nerve. Stock markets often rebound far faster than anybody expects, and all the shares they should have bought at knockdownprices dont look like bargains any more.
You never forget your first stock market fightbackeither. It canbe more painful than the crash, as you realise whata fabulous buying opportunity you have just missed. And youll be kicking yourself even harder if you do something daft, likepanicking and selling upat the bottom of the market. That inflicts a double blow on your portfolio:you will have crystallised your paper losses at the worst possible time, whilesimultaneously locking yourself out of the subsequent recovery.
Fools Rush In
Every time stock markets correct, we at theFool dashabout crazily telling anybody who will listen that nowis the time to buy top stocks. We have to make such a noise because yourinstincts are screaming at youto do exactly the opposite. We all like to buy clothes, food, cars and holidays at discounted prices, but somehow feel morecomfortable buying shares when they cost more. The result is that all too often we end up paying over the odds.
The current market crash is an unforgettable opportunity to buy shares. Lloyds Banking Group, for example, is the most traded stock on the FTSE 100. Today it is 20% cheaper than it was just three months ago.
Oil giant Royal Dutch Shell is also down 20% over three months, thanks to the oil price crash. If oilrecovers later this year, as many expect it will, Shells share price will soar. But you should only invest if you plan to hold for the long term at least five years and preferably longer to give the stockstime to recover.
Not So Risky
If the banking and oil sectors are too risky for you right now, there are other more solid opportunities. Income machineGlaxoSmithKlinehas largely shrugged off market panic yetstill trades at a low valuation of less than eight times earnings and yields almost 6% income a year. Utility giant National Grid is actually up 5% in the last six months, and yields 4.55%.
As share prices crash all around, now is the time to start searching through the rubble for great buying opportunities. Choose yourstocks wisely, and you shouldremember the current stock market meltdown in a nice way. You might even start looking forward to the next one.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline 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.