A little over a month ago, the stock market crash hit its worst. The FTSE 100 index fell below 5,000, the lowest since 2011. The Covid-19 crisis was becoming more severe as the UK, among many other countries, went into lockdown, bringing economic activity to a grinding halt. Disastrous predictions about the future of the economy followed. If I had panicked and sold stocks then, I’d be sitting on a loss. And a futile one at that.
Rising from the ashes
A month later, the FTSE 100 has more than begun its upward climb. By the end of March, it had already recovered substantially, with the index up 13.6% from its lows. It continued to rise, albeit with a few bumps along the road through April. At the last close at the time of writing, it’s up 17% from said lows. Index levels are now back up almost to the levels before the stock market crash became official, that is, fell by over 10% in a single day. At least some of my investments are now back in the green.
But just because the FTSE 100 is back to pre-stock market levels, I’m not for a minute thinking that the world of investing is also back to where it was earlier. The one key difference I spot is the increased number of potentially short-term disruptors, both good and bad, which can blur our long-term perspective.
Keeping long-term perspective in the stock market crash
Examples of impacted stocks are retailers on the one hand and oil companies on the other. While retailers like Ocado have seen a spike in sales as it’s safer and more convenient to shop online, oil companies are dealing with trying oil prices. The year started with geopolitical tensions between the US and Iran. The coronavirus pandemic soon lowered demand levels, a disagreement among oil producers on production targets followed, and after showing much weakness in recent months, oil prices fell into negative territory for the first time ever.
However, neither of these trends should impact long-term investors’ decisions in my view. There’s no denying the rise of internet commerce going forward and I’m a believer in Ocado’s potential from that perspective. It exists irrespective of pandemic driven lockdowns or not. I’d invest in it based on my estimate of where its share price can head in the next few years.
Similarly, for now and the foreseeable future, the world depends on oil to meet its energy needs. Overtime, as we move towards alternative energy sources, oil demand will decline. But that time hasn’t come yet. Oil companies like Royal Dutch Shell and BP are among the biggest FTSE 100 stocks in terms of market capitalisation. They’ve been around for a long time, and I’d be very surprised if they suddenly went under. I might have any number of other reservations about investing in them, but short-term price shocks aren’t one of them. As growth comes back, so will oil demand. Until then, I’m holding tight.
