For the past couple of weeks, the FTSE 100 has dropped significantly, losing 10% of its value in the past month.
On the minds of investors is the coronavirus, of course, and the uncertainty is causing nervousness. No one is sure of the outcome and how businesses will respond to the crisis.
If the market crashes in March, there is no doubt that personal investors will need to exercise caution. It takes a certain kind of character to put money into something when others are pulling out.
But here are two things I will be doing in March if the market crashes.
Think before selling
When the value of your portfolio significantly slumps in value, it will be tempting to sell. You might investigate why you even bought the shares in the first place.
I think it is a good thing to question ourselves about why we bought shares in a particular company.
But if you have bought shares in a well-managed, good quality firm that has a competitive edge over its rivals, then why would you sell if none of the circumstances change? It might even be a good time to double down and increase your holdings while the prices are low!
You will need nerves of steel to buy more and not to sell when the market slides, but it is important to remember that if you sell, you are turning a paper loss into an actual loss.
That is not to say that you should never sell your holdings. The circumstances may have changed for the business, or another buying opportunity might have presented itself and you need to release some capital.
But I would caution against listening to the noise and instead focus on your investing principles.
Buy earmarked shares
Over the past few years, I have identified several good quality companies that I want to buy a slice of.
However, the market has not been overly favourable to value investors for the past couple of years. I believe that many good quality stocks have been trading at, or above, intrinsic value.
Unilever (LSE: ULVR) is one such company. It is well-managed and also focused on the ethical issues and sustainability that are important to modern consumers. The list of household name brands in its portfolio, like Marmite and Ben & Jerry’s, make it a cash-generating machine. I also believe that in times of economic uncertainty, customers will still buy its low-cost products.
The problem for me has always been its valuation. It might be a fair price to pay for a wonderful company. But I am holding off buying Unilever stock unless its price is discounted.
Currently, Unilever shares are trading at a price-to-earnings ratio of 18, as its share price has slumped by almost 20% in six months.
It is certainly not a value investing gem yet, but if it drops much further, I will be buying the shares while they are on sale.
