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The past seven weeks have been a volatile time for UK equities. After the FTSE100 the index peaked on February 16, a fall in stock markets caused panic. And when there is panic on the streets of London, I see a golden opportunity to get richer in the long run.
The market is falling
During the first weeks of 2023, the blue chip index continued its rise that began when the US stock market bottomed out on October 12, 2022. From December 30, 2022 to February 16, 2023, the index jumped 8% to reach an intra-day high record of 8,047.06 points.
At this point, I warned that the Footsie may have pushed too far, too fast. After all, it’s up 17.9% since its Oct. 12 close. With investor exuberance so high, I sensed a slide was looming.
For the record, the FTSE 100 closed at 7,335.4 on Friday. This makes him lose nearly 712 points (-8.8%) in just over a month. Moreover, the index has now lost 1.6% of its value in 2023. For many investors, this fall has come as a shock.
Why stocks are like socks and hamburgers
My investing hero, mega-billionaire investor and philanthropist Warren Buffett, has repeatedly pointed out that falling stock prices can generate great bargains.
For example, he once made the following wise remark: “Whether it’s socks or inventory, I like to buy quality merchandise when it’s marked down.” In 1997, he made a similar point, arguing that hamburger buyers should want lower prices for beef.
So why do investors panic when the stock market slips? Surely we should accept lower prices to buy largely the same quality products? From my perspective, I plan to buy and hold more stocks in the years to come, so advantageous purchases now should boost my future returns.
What stocks should I buy now?
When the stock market plunged again on Wednesday, I begged my wife to find the money to buy even more stocks. Unfortunately, she was unable to oblige. Not because we’re broke, but because she’s already invested nearly 100% of our spare money in stocks.
In short, I’ve been desperate to buy stocks this week. As an old-school value investor, I see deep value lurking in the FTSE 100. For example, if someone handed me £25,000 in cash today, I would immediately invest it in, say , five quality stocks.
To me one of the biggest deals in London today is Blue Eagle Bank Barclays (of which I already own some shares). At Friday’s low, this undervalued stock hit 137.74p. At this price, this stock offers a tasty dividend yield of 5.2% per annum, with that cash return being more than four times covered by earnings.
However, these are historical figures, based on the bank’s profits. And as the UK economy weakens and consumer confidence falls, bad debts and bank loan losses are expected to rise. Even so, with such a wide margin of safety, Barclays strikes me as a godsend for passive income.
Additionally, I see exceptional value lurking in various sectors of the FTSE 100. These include asset management and insurance, banking, oil and gas, mining and telecommunications. So if this stock market decline continues, I’ll buy even more cheap stocks in April when I have money to spare!
