I have no idea when the next stock market crash will come. But I do know there will be one. That’s what history tells us. And when it hits, many are likely to see their portfolios take a huge battering.
However, it could also bring about an opportunity to retire early.
When was the last one?
The last UK stock market crash was in spring 2020, at the start of the pandemic. On 12 March that year, the FTSE 100 fell 11%. Overall, the index tanked around 30% before recovering.
Compared to 31 March 2020, the Footsie’s now (14 June) over 80% higher. And a look at how some of the biggest stocks have recovered over the past five years or so, is a reminder how a market crash can present some exciting opportunities.
The table below shows how the share prices of the UK’s five largest listed companies have changed since Covid struck. A £10,000 investment in these five would now be worth an incredible £39,760.
| Stock/Share prices | 31.3.20 (pence) | 12.6.26 (pence) | Change (%) |
|---|---|---|---|
| HSBC | 444 | 1,348 | 204 |
| AstraZeneca | 7,216 | 13,670 | 89 |
| Shell | 1,419 | 3,208 | 126 |
| Rolls-Royce Holdings (LSE:RR.) | 117 | 1,291 | 1,003 |
| British American Tobacco | 2,759 | 4,589 | 66 |
Of course, it doesn’t always work out like this. Diageo, the drinks giant, was one of the few winners from the pandemic. But its share price is now 41% lower than it was in March 2020.
Be fearful when others are greedy, and greedy when others are fearful.
Warren Buffett
A remarkable turnaround
One company that was nearly wiped out by the last crash was Rolls-Royce Holdings.
Although the pandemic massively reduced the number of hours that its engines were flown, its plummeting share price – it fell over 90% in the two years to October 2020 – wasn’t a reflection on the quality of the group or its products. It still had the same physical assets, intellectual property, customer contracts, engineering know-how, and reputation.
| Year | Large engine flying hours (m) |
|---|---|
| 2019 | 15.3 |
| 2020 | 6.6 |
| 2021 | 7.4 |
| 2022 | 10.0 |
| 2023 | 13.5 |
| 2024 | 15.8 |
| 2025 | 17.0 |
But the uncertainty over how long the disruption was going to last caused mayhem. A crash isn’t a rational reaction to events. It’s simply panic. And those who were brave enough to take advantage, have done very well since.
For example, a £10,000 investment made in June 2021, is now worth over £111,284.
Looking ahead, if this sum grew at 7% annually (in line with the historical average of the FTSE 100) for the next 20 years, it would be worth an astonishing £430,634 by the middle of the century. Find some dividend stocks paying 6% a year and someone could retire early with an annual income of £25,838.
And in my opinion, there are plenty of reasons to believe that the stock could grow by at least 7% a year for the next two decades. Its small modular reactor (SMR) programme is starting to gain momentum. And it wants to return to the narrowbody aircraft engine market. Significant revenues from each are anticipated in the 2030s.
More immediately, data centres are driving demand for its off-grid power systems. And large engine flying hours are continuing to rise steadily.
Of course there are risks. The group’s shares trade at a generous multiple. This could spell trouble if there’s an earnings miss. Also, we don’t know whether its SMRs will be commercially viable.
Due to its huge long-term potential and remarkable resilience, I think Rolls-Royce is a stock to consider.
Should you invest £5,000 in Rolls-Royce Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Rolls-Royce Plc made the list?
James Beard owns shares in Rolls-Royce Holdings plc.
