“There are no bad days in the market. When the market is down, you’ve got bargains, and it’s lovely to think of what you are buying at low prices. When the market is up, the bargains have gone, but you’re rich.”
BRUCE GREENWALD (FIRST EAGLE FUNDS)
This past Thursday, investors decided that their beliefs that the American economy had recovered from the Coronavirus were a false reality. News that Coronavirus infections had risen in 21 states, Congress would have a hard time extending more aid as presidential politics ramped up, and that the Federal Reserve chair, Jerome H. Powell, warned that the depth of the downturn and pace of the recovery remained “extraordinarily uncertain,” led to a free fall on Wall Street, where stocks suffered their worst drop in nearly three months and the S&P stock index fell 5.9 percent, after it had just made up its losses for the year.
The next day, the Dow Jones Industrial Average gained 477.37 points. But the major averages, however, had their worst week since March, as traders became anxious about news of a resurgence of COVID-19 cases and took profits. For the week, the Dow and S&P 500 lost 5.5% and 4.7% respectively, while the Nasdaq gave up 2.3%. All three indexes had their worst week since March 20. So was Thursday’s sell-off just a blip on the radar? “We’re actually going to have a W-shaped recovery,” said Chad Oviatt, director of investment management for Huntington Private Bank in Columbus, Ohio. “Markets are dealing with the fact that we now have an elongated recovery period.”
Treasury Secretary Steven Mnuchin told CNBC on Thursday morning, “We can’t shut down the economy again. I think we’ve learned that if you shut down the economy, you’re going to create more damage.” On the other hand, States may need to reimplement the strict social distancing measures that were put in place earlier in the year if U.S. coronavirus cases rise “dramatically,” the CDC’s deputy director for infectious diseases, Jay Butler, told reporters during a press briefing on Friday. So as you can see, we are encountering uncertain times. Consequently, I would expect the market to see some big drops along with big gains as investors navigate through the good news and the bad as a result of the impact of the coronavirus on our economy.
I would never tell anyone to sell their stocks solely on the basis of fear or the negativity you often hear coming from Wall Street. The honest truth is that there are more opportunities to make money in this unstable market than you may think. Here are 8 tips I’ve gathered from some of the most famous investors in the stock market. Whether you’re just getting started investing, going about buying stocks solely based on tips from friends or something you read, are not happy with the results you’re getting from your financial advisor, or are just interested in learning how to tackle the tumultuous market we are entering, this article is for you. Hopefully by reading these sound investment principals, you’ll be empowered to make great decisions in the stock market regardless of how the news of the day affects Wall Street.
Warren Buffett of Berkshire Hathaway
1. “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”-Warren Buffett
Especially now, you want to be investing in established companies that are leaders in their industry. Ones with strong balance sheets, excellent management teams, and a proven track record over time. Companies that offer great dividends are a plus. These are the ones you invest and reinvest in when their prices dip, because you’re assured that whatever happens in the market, they will return to where they left off once the dust has settled. You should not be buying companies just because they are cheap or others are telling you to buy them without doing your due diligence and seeing how their industry has been affected by the virus and their long-term growth potential.
2. “Investors need discipline to avoid the many unattractive pitches that are thrown, patience to wait for the right pitch, and judgement to know when it is time to swing.” Seth Klarman
If you follow the stock market, everyday you’re going to see plenty of news sources pushing stocks as, “The best COVID-19 proof stocks” or, “The next big trend.” Carefully scrutinize everything you read. If a particular company passes your checklist, and you develop a strong conviction about it, sit on your hands and wait. It’s most likely that during this tumultuous time you will find the right time to buy it. In addition, if you own a stock and you see it drop like it did this past Thursday, you may want to add to your position in it. And if it drops further, once again this could be a time to add more. This does take having some cash in reserve, which is a smart thing to have while you’re investing in today’s market.
3. I am convinced that all this poverty in Mexico and in Latin America like it’s happening in China is the opportunity to grow. It’s an opportunity for investment.” -Carlos Slim
While playing the market during the coronavirus pandemic, don’t look at what’s happening now when looking at a particular stock. By studying a company’s growth outlook or how/if it’s going to return to pre-coronavirus levels, as well as how it will differentiate itself from its competitors when coronavirus passes and our economy strengthens, you’ll learn the importance of investing for today because of what will happen in the future. This is called forward thinking, and is a very important principle to call upon when the stock market is teeter-tawing from good news to bad news and back.
4. “A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices.”-Warren Buffett
Don’t be too negative or fearful of the day-to-day happenings of your stocks. If you own stocks in companies in which you believe strongly in, any day that the stock market plummets gives you opportunities to increase your position in them. It also makes for a good time to invest in a company you’ve had your eye on as well. You may have to be extremely patient, which the best investors are, but at the end of the day you want to own stocks in great companies that were close to their 52-week high a few months prior to this past March when the market crashed. If you can’t see anything long-term that would stop them from reaching those levels again, there will be a buying opportunity. If they’ve grown in a new direction giving them additional streams of revenue, again, a buying opportunity. Finally, if the changes in our new economic landscape favors what the company produces, that’s a great signal to buy or add to your position when the price is right. Great buying opportunities come around for these companies, which can make being in this topsy turvy market quite lucrative.
5. “Though tempting, trying to time the market is a loser’s game. $10,000 continuously invested in the market over the past 20 years grew to more than $48,000. If you missed just the best 30 days, your investment was reduced to $9,900.- Christopher Davis
I’ve also heard the catchy phrase, “Time in the market, not timing the market.” This principle of investing is an important one to understand when investing in today’s market. You can’t predict when the good days and bad ones will happen. That is why at times you’ll need to sit on your hands and learn to do nothing for extended periods of time, until a great opportunity presents itself. This can be very hard, because fear and impatience often settles in, and you will probably see opportunities that look more appealing than the stocks you are sitting on. My advice is to not sell out of your positions. Unless you strongly feel that you’ve misjudged a company, or research is telling you that they are going to have a hard time growing due to permanent changes to our economy, stay put. The best returns you can have are when you stay long in your positions, especially when the stock market will have a lot of ups and downs, which is what I’m forecasting. This can be hard, but is prudent. Plus, if you’re buying strong dividend stocks, staying in them you will earn money, whether their prices are up or down. I will touch on this later.
6. “It’s not always easy to do what’s not popular, but that’s where you make your money. Buy stocks that look bad to less careful investors and hang on until their real value is recognized.”-John Neff
I definitely have a contrarian streak in me when it comes to investing. In such, during the coronavirus pandemic, there have been so many appetizing opportunities to buy into great companies at a cheap price. This is due to the short-sighted, doom and gloom rhetoric that often permeates throughout Wall Street during struggling times in America. From where I see it, there will be a handful of days on the horizon similar to what happened last Thursday on Wall Street. Some good companies will take a bad rap based on short term issues, and their stock price will take a hit. These out of favor companies are the ones you need to study vigorously. Warren Buffett would have you ask yourself, is this company, “something that you’d be perfectly happy to hold if the market shut down for 10 years.” Don’t look at how a beaten down company fares in the short term. Study these companies and see what will bring them back to their pre-coronavirus stature in the market. If you see a long-term opportunity, forget what people are saying and when the opportunity presents itself, attack. Most people on Wall Street aren’t usually thinking in these terms, so that’s where you gain a competitive edge in the market. Many great investors have made their fortunes going against the public.
7. “Dividend stocks have several advantages, since 1926 dividends have accounted for about 42 percent of investor returns, while being less volatile than the market. To some extent the dividend acts like an anchor, slowing the stock down. The beauty of dividends is that you get paid, whether or not the market is up.”-Howard Silverblatt
Investing in companies that are consistently growing their dividends is a great way to make money in this market, whether their stock is up or down. What you need to know is that a company that has raised its dividend on a consistent basis for many years, and continues to have a massive cash reserves and great cash flow, usually is one that shows earnings’s growth on a consistent basis as well. By owning and holding onto these stocks, and reinvesting in them during tumultuous times in the market, you are setting yourself up for compounding dividend returns at prices that were bought at a discount. And these returns do add up, as much as 42% of investor’s returns. That is huge. John D. Rockefeller said, “Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.” And Warren Buffett has over 80% of his stock portfolio invested in dividend stocks. I suggest you focus on a handful of these strong dividend companies when looking to add to your portfolio. By doing so, you’ll give yourself an opportunity to earn money as you sleep at night, on good days in the market as well as bad.
8. ” Obsession with broad diversification is the sure road to mediocrity “-John Neff
When it comes to investing, I’d rather own a few pieces of something that is of quality, pays more, and can be monitored more closely than to own a little piece of everything. In today’s unstable market, there’s a lot of money to be made by being an active investor. By owning between 3 to 5 companies at a time that are well established leaders in their industry, you’ll have opportunities to reinvest in them when a major dip occurs. People tout index funds and passive investing because they supposedly mitigate risk and those who don’t have the time to follow the market can still be invested, But factoring in the lower returns for the passive investor, those advantages take a hit. Plus, diversification doesn’t offer you protection from risk when the stock market has a day like it did on Thursday. Just ask yourself, are you better off by owning a larger basket of averageness or a smaller basket of greatness?
In summation, many Wall Street observers had been pleasantly surprised by the market’s strong recovery after the coronavirus decimated our economy. Thursday’s massive slide was a reminder of how far we have to go to get our economy moving again, and how easily forward progress can get backed up as the second wave of the virus sits in waiting. This place of uncertainty in America, in my opinion, is a recipe for increasing volatility in our stock market. By offering you some investing principles and advice that have helped turn people into billionaires, I’m hoping that you will come out ahead when COVID-19 has sailed away and our economy is strong again. Remember, bad news is often positive for those investing in the stock market. The majority of these companies will be profiting at high rates in 5 years or less. So go out and invest with confidence in knowing that an unstable market can be a place of wonderful opportunities and tremendous returns. The waiting will be the hardest part, but the returns will be plentiful.
Disclaimer : This material should not be considered investment advice. After Further Review…The Stock is Reversed or Bob Schless are not registered investment advisors. Under no circumstances should any content from this blog, website, articles, videos, seminars or emails from After Further Review…The Stock is Reversed or Bob Schless should be used or interpreted as a recommendation to buy or sell any type of security or commodity contract. This material is not a solicitation for a trading approach to financial markets. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This information is for speculative purposes only.
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