HELLO ALL SHOPPERS: THE STOCK MARKET IS ON SALE
As originally appeared in The Jerusalem Post on March 6th, 2020.
Coronavirus. Bernie Sanders. Both of these reasons have been attributed to the fast and furious market sell-off of the last few weeks. The extreme volatility has many investors pondering whether to head for calmer waters by selling a large part of their stock holdings. Whether that’s a good idea or not is for another article, but most of you who have been reading my articles for some time know what my answer would be.
It’s hard to find a silver lining in this situation but for investors sitting with cash or for young, first-time investors, this could be an ideal situation. This may turn out to be an unbelievable opportunity.
Discount
We all know the famous investing principle; buy low and sell high. Although there is no sure way to declare that the market has finished falling, it is certain that the market is cheaper now after a 15% decline than it was 3 weeks ago when it was at a record high. In other words, the market is somewhat “on sale.” As I mentioned last week, I just celebrated my 20th wedding anniversary, and if I have learned anything from my wife in these past 20 years, it’s the need to buy items on sale! Whether they are needed or not is not the issue. It’s all about the sale.
Not to get too stereotypical but let’s face it, as consumers, no one likes buying retail, and with the recent market pullback, it’s as if the investor is buying wholesale! If the Rami Levi or Osher Ad supermarket chain had a 20-30% off sale, shoppers would be lined up around the block to have a chance to make purchases at rock bottom prices.
Blue-chip companies like Microsoft (MSFT) or Apple (AAPL) have dropped significantly. They both pay dividends and they can be bought at 15-20% off where they were trading a few weeks ago. Now I am not saying to run out and buy either one of these. I understand that there are supply chain disruptions and that demand has temporarily tailed off. They are just examples of what I am talking about.
When you filter out the continued non-stop media inducing panic and other noise that may be contributing to the market drop, you will see that the financial state of many top corporations is very strong. The smartest thing over the last few weeks that I heard is that “ the media should be put into quarantine”! Again, there may be short term negative economic ramifications, but demand will come back sooner rather than later and the economy will get back on track. Earnings reports will once again show strong growth with equally strong future outlooks. When things calm down and rational thinking starts to take over, the focus may very well shift to the fact that some very good companies are trading at very cheap levels.
Got cash?
As those sitting with cash have learned, cash returns little in the way of interest. This week I had a meeting with a woman who spoke about how her grandfather related to cash. He would say, “Cash sitting around in the bank gets moldy.” Now maybe the time to take advantage of the recent market plunge and take a look at starting to invest in stocks. It’s important to remember that you can lose money in stock market investing, and there is certainly no guarantee that the market won’t continue to drop. Remember that short term volatility happens all the time, and markets can and will drop, just look at what is currently happening. The most important aspect to determine how to react to market jitters is to figure out what your time horizon for the investment is. If you have a short to mid-term time horizon, you have no business investing heavily in stocks. If you have a 7 year or longer outlook than short-term swings shouldn’t cause worry and you should keep your eye on the long-term performance of the stock market.
To illustrate the power of investing over the long term I will repeat what I have been telling clients recently. You only have to go back to the last 2 months of 2018, when the market in a matter of weeks shed 20%. No one even remembers that anymore, but a year ago, investors were panicked. Just in the last 20 years we have made it through the internet bubble burst, the sub-prime fiasco, and many other market shocks. Investors who stayed the course through those market crises ended up doing very well. Those who took advantage of the drops and bought did even better. Keep in mind that past performance is no indication of future results.
If you have un-invested money that you don’t need in the short or medium term, now may be the time to try and take advantage of the market drop.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.
Aaron Katsman is author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, FSI. For more information, call (02) 624-0995 visit www.aaronkatsman.com or email aaron@lighthousecapital.co.il.
