May 15, 2020
• The global coronavirus crisis gave a rare opportunity to buy stocks on large discounts.
Unfortunately, I haven’t discovered this App by Substack sooner, to inform you timely.
I had seen this Black Swan type crisis… see my comments to Martin Pring…
In my private Group in Facebook (Investment Club), I had posted in March 11 (when S&P500 was at 2741 points), that is time to buy (see image below).
I also in March 16, again in my private Group in Facebook (Investment Club), I was asked by a member, what someone to look out fundamentally, who is thinking of buying.
My answer was:
If you want to buy an ETF that follows S&P, that is, to move passively (index investing), then you should do with one periodicity, about every two weeks a purchase, three purchases in total the ETF you have chosen.
Why not to make 2-3 purchases, one right after the other?
Simple logic: if you made your 2-3 purchases in a week, the differences would be small, and your average cost would be affected by the stock market this particular week ( = increased risk).
On other hand, if someone buys in 2-3 stages, successively, over time as I mentioned, will achieve a good (low) average cost, following the downward dynamics of the market.
The market is already fundamentally attractive with the decline that has taken place, for a long term investment, as the long-term outlook for the US or international economy has not changed due to a corona. Due to corona, there is short-term panic and general sell-off. And of course, as the market continues to fall, it becomes even cheaper.
The same applies if you want to buy specific shares (consecutive purchases, with space between them). I will not say which ones, but I will say what: stocks that have a high dividend yield. Because the dividend is real money that is given, so indicating companies that are really strong.
Of course, because dividend yield is on the one hand the result of the amount of dividend given, on the other hand of the stock price (which as it falls, Dividend Yield - DY%, becomes higher), be careful which one you choose. Look up if the DY%, is stable and operational generated, and not incidentally high, like in the case that some company may have some extraordinary profits which it channeled into the dividend once. In other words, make sure that the stocks you choose and give you a high dividend yield are due to organic profitability, which is as repeatable as possible, which of course means that you are not particularly affected by the current crisis. An example of a company (sector) that is affected by this crisis, is an airline: an airline company while may giving a high dividend on normal times, on the basis of organic profitability, however now that the planes travel paused, its organic profitability will be disproportionately affected compared to other companies/sectors, e.g. a food company (in a food company, obviously its organic profitability will not be affected by the corona crisis because people don't stop eating). I described the general reasoning to you.
So those who managed to buy (on mid March, April and May), they did well. If you didn’t buy, you lost a rare opportunity. Why rare? Because you don’t meet the Fear level often at 3 (just three)…
It seems that market actors (investors, traders) anticipated a relatively quick recovery of the real economy and they bet on this; the enormous cash-liquidity in USA and Europe, that is given to real economy, will help to ease the negative consequences of the corona-crisis, and the general recovery of the economy. That’s why the Nasdaq and S&P500 recovered quite satisfactory …
So, those who didn’t buy, probably because of fear, they must try, to catch up, especially on dips. Don't stay behind.
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