Black Friday, Black Monday... Many Black Days in the Stock Exchanges.
- After the coronavirus-crash, many investors want to buy cheap stocks.
- Nobody can know if we reached the bottom. Be cautious.
- Timing is mostly ineffective.
- A good old tactic is cost averaging.
Better Buy Cheap Stocks Than Expensive Ones
Now, after the coronavirus stock market crash in March, investors can read dozens of opinions and prognosis in the world press every day. All about whether stocks should be bought at these post-coronavirus levels or not. Half of the opinions say yes, the other half, not yet. Some are talking about a “once-in-a-lifetime buying opportunity”. Others say “the worst is not over yet” or “real bottoms come far lower than that”. It can embarrass, especially inexperienced investors, not to be able to determine which expert to trust. Now, in March, April, changes are so fast.
It seems to be impossible to make a reliable prognosis. But many old stock market wolves believe we should buy. Now, “when there’s blood in the streets”. When everyone sells. This is the essence of the so-called contrarian thinking. (There are other schools, like technical analysis with different approaches.) Many fundamental analysts also think so, for example, the guru, Warren Buffett. He bought many stocks in 2009. Older investors may be bored with this sentence, but the quote fits very well here:
Be Fearful When Others Are Greedy and Greedy When Others Are Fearful – Warren Buffett.
Hard to Keep Calm in the Crash
Although we can’t be sure, buying cheap stocks after big falls will likely be a good investment in the long run. This is also supported by my private calculations. (Read here: Should You Buy This Crazy Coronavirus Crash?) But it does matter at what price we buy. It’s very depressing when you buy stocks and they still fall other 20 to 30 percent. Investing is often a psychic challenge, especially in a crash. It’s hard to keep calm and avoid panic. For example, look at the chart of the S&P 500 index in 2008-2009:
Cheap and cheaper buys. The S&P 500 stock market index in 2008-2009. Marked with arrows: the 670 and 930 point levels, approximately. (Tradingview.com)
It is important whether somebody bought the S&P 500 index at 670 or 930 points, for example. (Marked with arrows.) The difference is huge, 28 or 38 percent (670/930 or 930/670).
Ageless Advice with Common Sense
When someone asks me if to buy or sell at a certain price, I never give a straight answer. Usually, I can’t know anything for sure either. And I don’t want to cause the losses of others. Good advice in a situation like this might be: Buy (or sell) the half now, the other half later. So if prices improve, the person is glad he still has a half. And if they get worse, he’s glad he’s sold half of it. The risk is lower, and the mental burden is also minor.
A more serious method, the Dollar Cost Averaging, is based on a similar principle.
There Are Much More Points to Consider. This Post Continues On: Agelessfinance.com
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I’m not a certified financial advisor nor a certified financial analyst, accountant nor lawyer. The contents on my site and in my posts are for informational and entertainment purposes and reflecting my collection of data, ideas, opinions. Please, make your proper research or consult your advisors before making any investment or financial or legal decisions.
I have open positions in global energy stocks (long) at the time of writing.