Why the lowest Footsie level since 2016 means "Buy, buy, buy"

It's early Tuesday morning, the news headlines are shouting "FTSE 100 slumps to lowest level since 2016", and I've already had one person sucking their teeth and saying to me: "Bad day to be in shares, isn't it?"

No, it isn't! It's a great day for long-term investors, and instead of shaking our heads and grinding our teeth, we should be reviewing our favourite shares to see which ones are looking even better buys today.

All that's happened is a very silly thing that crops up with regularity. The FTSE 100 falls a couple of percent, the Dow Jones does the same a few hours later, and then the Asian markets catch on to the panic and there's a sell-off there. And then, the next day, the Footsie carries on from where Asia left off and the slump continues.

People panic, wondering if this time it's going to be the start of something big, and they sell out just in case. And we get a nonsensical circle which results in markets falling just because they've fallen.

But it's almost never the start of something big, and cooler-headed investors have a short-term opportunity to top up on their long-term favourites. And the markets quickly get back to business as usual -- the FTSE 100 is already back to 7,220 points as I write, from an early low of 7,079.

Be greedy

Remember Warren Buffett's famous exhortation to be "greedy when others are fearful"? I wonder how many times he's looked at the headlines, shaken his head and thought "Why won't they listen?" -- while at the same time reaching for the Buy button.

What should you buy? I'd say the same thing you would have bought anyway, but you'll get more of it for the same price.

I'm looking at dividend favourite Aviva. With the shares at 495p now, I'm down 4.3% in just a couple of days myself. But you know what? If you buy at 495p, the predicted dividend would now give you a yield of 5.3% rather than the 5.1% you'd have snagged a couple of days ago. And with a forward P/E down to 9.3 (from 9.7), I'd say the growth prospects have just got a bit better too.

And look at BP shares. They've lost 5.7% during the rout, but does that make any sense? Has the outlook for the oil business suddenly deteriorated since Friday? I certainly don't see it, but what I do see is a dividend yield that has been boosted to 6.1% by the share price fall.

There'll surely be investors snapping up these and other top shares in each sector today with a long-term view, and I reckon that's a pretty good approach to short-term jitters.

Footsie still cheap

The FTSE 100 had soared by around 35% over two years, with other world markets doing even better, so it's perhaps not surprising that nervous investors were looking for signs of a so-called correction. But that's looking at the short term, and the UK's top index is actually up only 23% over the past 10 years, which is hardly an over-heated performance.

This week's stock market dip has pushed the forecast dividend yield for the index to around 4.5%, which is way ahead of its decade-long average of around 3.4%. I reckon that's another sign that the UK's best shares are still undervalued, especially after this irrational sell-off.

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Right now I'd be going for long-term favourites at the top of their game, which have suddenly become cheaper for no good reason.

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Alan Oscroft owns shares in Aviva. The Motley Fool UK has recommended BP. 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.

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