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Both the US and UK stock markets fell over 10% in the space of three days recently. This sharp correction will have pummelled the value of many investors’ portfolios. It certainly hit both my Stocks and Shares ISA and SIPP quite severely.
Whether this will develop into a full-on stock market crash to rival 1987 or 2008 is still unknown at this point. As I write (8 April), the S&P 500 is ‘only’ around 17% off its recent high, so could have further to fall before the selling is done.
The key thing to bear in mind
When scary headlines are everywhere like they are now, it might be tempting to sell one’s stocks and hide out in cash. Then, once the chaos subsides, the positions can be rebought and everything will be hunky-dory. Disaster averted.
But there is one inconvenient problem with this theory. Nobody knows when the bottom will arrive or when the market will suddenly start surging upwards to recovery and beyond.
According to research from JP Morgan covering the years between 2004 and 2024, seven of the 10 best days in the market happened within 15 days of the 10 worst days. This shows how quickly the market turns, as investors rush to pile back in.
Moreover, JP Morgan shows that missing out on just a couple of those huge rallies can really impact performance for the worse.
My solution to this? Stay the course and invest strategically on big down days. This can really turbocharge my portfolio whenever things turn around.
We’ve just had a couple of the worst market days on record. While nothing is guaranteed, history suggests that there could be a massive rebound day coming in the next fortnight. I certainly don’t want to sell off my portfolio and miss out on that.
FTSE 100 hedge fund
In recent days, I’ve been buying a handful of stocks while they have been beaten down. I intend to buy a couple more too.
One I’m considering is Pershing Square Holdings (LSE: PSH), whose share price has fallen 25% since mid-February.
This is the FTSE 100 investment trust that gives exposure to the investing strategies of hedge fund manager Bill Ackman. He has a very solid track record of generating fantastic returns during periods of market stress, as we’re seeing today.
He can do this in two ways. First, by making bold bets on companies he believes have been massively oversold. Second, by using hedging strategies — including options and credit default swaps — to profit from major market dislocations.
Admittedly, this level of complexity does add risk, as the strategies might not pay off or offset declines in the value of Pershing Square’s stock portfolio.
Also, the fund is very concentrated, with one holding (Nike) taking a battering in recent weeks. The global sportswear giant is facing huge operational challenges, as pretty much all of its manufacturing is in Asia, which has been hit with stiff US tariffs.
Despite these risks, Pershing Square shares look undervalued, trading at a whopping 37% discount to the fund’s underlying net asset value.
I’m optimistic that Ackman can spot and seize bargains during this market chaos, making me tempted to buy more shares.
