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Here’s what I think Warren Buffett would do as the FTSE 100 falls

Alan Oscroft
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The FTSE 100 slide continues as the coronavirus outbreak fills our news headlines. It’s hitting the Middle East, where the Gulf states are home to a number of the world’s long-haul travel hubs. And contagion is reaching Europe, with Italy having identified 400 cases so far.

The markets’ reaction? The FTSE 100 closed Monday with a 247-point fall, or 3.3%. Individual shares frequently fluctuate far more than that on a daily basis, but for the index itself, that’s a big fall. And it got worse.

Bad week

By Wednesday, the Footsie had dipped below 7,000 points, though it closed just above that level at the end of the day. But, as I write, we’re looking at a fall of 138 points so far Thursday morning, putting the index at 6,904 points — and it’s been as low as 6,852.

So far this week, the FTSE 100 has lost 6.8% of its value. But you know what that means to me? There are a whole load of top shares out there that are now 6.8% cheaper.

I don’t want to downplay the possible effects of the potential pandemic, but I’m confident of one thing. It’s unlikely to have any long-term effect on the profitability of UK companies. In the short term, there’s going to be some uncertainty for sure. Big investors hate uncertainty, and that’s driving them away from shares.

Big yields

Do you think Lloyds Banking Group has been undervalued for years, the way I do? So far this week, the Lloyds share price is down another 10%.

Prime Minister Boris Johnson’s latest brinkmanship, saying he could walk away from EU trade negotiations as early as June, hasn’t helped. But Lloyds shares were already dropping faster than the FTSE. The forecast Lloyds dividend yield now stands at 6.9%, and that’s helped make a top-up on my Lloyds shareholding a very tempting proposition.

Look at Royal Dutch Shell as another example. Shell is one of the Footsie’s most reliable dividend providers, and I really can’t see any long-term impact from coronavirus on the world’s need for oil and gas. Yet Shell shares are down 7.2% this week so far. Forecasts already had Shell’s 2012 dividend set to yield 7.6%, and the market downturn has now lifted that to 8.2%.

It’s the same across the board, with bargain shares everywhere.

Buffett bounce

Warren Buffett famously said investors should be “fearful when others are greedy and greedy when others are fearful.” That’s often trotted out when markets are in a slump, and I make no apology for quoting it again.

You might turn your nose up a little at the idea of being greedy, but all Buffett really means is something more benign. Stock markets can be notoriously emotional, and tend to overreact to whatever comes along. It’s why we see booms and busts littering the history of the world’s indexes.

But when you look at the longer-term charts, all those ups and downs tend to disappear back into the sea of noise, dwarfed by the inexorable rise of share prices. Those who sold when bubbles were in full swing, and those who bought when panics were sending prices crashing, have done the best.

It’s been a bad week for public health, but a great week for investors seeking share bargains.

The post Here’s what I think Warren Buffett would do as the FTSE 100 falls appeared first on The Motley Fool UK.

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Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2020