Last week it felt like the world was coming to an end. The FTSE 100 wasin a death spiral, falling more than 22% from last Aprilsall-time high of 7,122. The Chinese hard landing seemedlike a crash. European banks were in a tailspin. Eventhe previously buoyant US was sucked into the maelstrom. Oil was plunging. Commodities collapsing. Worst of all, central bankers were running out of ammunition, and had finally lost the faith of markets (what took marketsso long?).
In the middle of themeltdown, with the FTSE 100 plummeting to a four-year low of 5,500, I wrote: Foolish investors never waste a crisis so dont waste this one!I wrote another article saying: Make this FTSE 100 crash memorable for the right reasons, namely bysearching through the rubble for great buying opportunities.My colleague Alan Oscroft was even more bullish, stating that the FTSE 100 looks like a screaming bargainright now.
I had to steel myself to write these articles because part of my brain was also in panic mode thinking: What if this is actually the end of the world? I would look pretty silly urging investors to buy shares in the midst of a full-scalemarket meltdown with no end. It feltlike standing on the deck of the sinking Titanic enthusiastically trying to flog offshares in the White Starshipping line.
But this is howwe rollat the Fool. When share prices start plunging we disengage our instinctive flight mechanism and press the counter-instinctive fight button instead. We do this because history shows that the best time to buy stocks and shares is when markets are falling and you can pick up your favourite companies atbargain prices. That way you lock-inat lower valuations and higher yields, and reapthe rewards when markets rebound, as they always do in the end, and often sooner than you think. Better still, youcontinue to benefit from your bargain hunting foray for years to come, providing you do the sensible thing and hold for the long term.
Itold you to buy the FTSE 100 and today I canstand here all smug and proud asit recently climbed above 6,000, delivering an instant 10% returnto anybody whohad bought at the bottom of the market. Yay for me.
Ups and downs
YetI shouldnt be too smug. Stock markets arent out of the woods yet, far from it. Ifinvestors wake up to the danger that negative interest rates will do more harm than good, especially to bank profits, or if they suspect the oil price is about to start falling again, the FTSE 100 could slip below5,500 in short order. Thats the chance investors always take when buying shares. Whichis why its better to buy when markets are irrationally low rather than irrationally high.
Personally, I wont mind if the FTSE 100does fall again. It will give me another opportunity to urge youall to embark on anothercut-price share buying spree. Will you be listening then?
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Harvey Jones holds several FTSE 100 trackers but has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.