Image source: Getty Images
I like FTSE 250 In times of power. When the economy is strong and the stock market is doing well, investors are often chased by smaller stocks as their prices rise. And the FTSE 250 is home to many of them.
But we’re not in a bull market, so why am I talking about it now? Well, the best time to buy FTSE 250 shares is not when everyone else is doing the same thing and the share price is high. No, I want to seek them out when others are scared and cheap.
We should look back at the high stock market volatility in the FTSE 250 compared to FTSE 100 In the past ups and downs.
In the 10 years from December 2009 to December 2019, FTSE 100 shares are up 39%. But FTSE 250 shares beat the pants with a 110% rise.
The reverse of the epidemic
Then the pandemic hit and UK shares tanked. And the FTSE 250 saw the biggest fall. What was the best thing to do then? Invested in solid blue-chip FTSE 100 stocks that will hold up through thick and thin?
Well, the FTSE 100 has gained 38% from its lowest point since the Vivid crash in March to the end of August 2021. But investors who went for the riskier FTSE 250 rather than those big safety stocks would have enjoyed more than double the gains. The FTSE 250 rose 78%.
what about now
What does this have to do with investing today? Well, since that 2021 peak, we’ve seen recession, Chinese economic weakness, and war in Ukraine, and markets have turned bearish again. And while the FTSE 100 managed to stay fairly flat, the FTSE 250 lost 20%.
I’ve never been one for trying to time the markets. I’m not good. I don’t know anyone else either. But I know two indices that have opposite volatility when I see them. And if we want to invest in one, of course the best time is weak compared to the other, isn’t it?
Which FTSE 250 shares should I buy? I haven’t done enough research but I can tell you two that I have on my radar.
Two cheap stocks?
Straight line It looks good to me. The insurance sector can be cyclical, just like the FTSE 250. While the straight-line price-to-earnings (P/E) ratio is forecast to fall, I see prospects for recovery but growth. There are also big dividends, and I want to lock in good long-term yield.
And then there is Royal Mail Group, who struggled. Its P/E will fall below six in the next two years, if forecasts are correct. That should be cheap, right?
These have their own risks, which I haven’t attempted to explore here – and I certainly dug deeper before buying either. But they are the type of stock you can buy when the FTSE 250 is out of favour.