Markets are tanking. Should I cash out?
It is almost impossible to read about anything other than COVID-19 and we are no different. As a wealth manager, I can only pass on my ideas on what to do given the turmoil in the markets. There are many losers in these markets, but with every loser, there is a winner. We can only hope that this pandemic comes to an end at some point. History shows us that it will.
In the meantime, we need to admit that there is going to be more pain than there already is. It will come in the form of savings disappearing and businesses going bust. The world is locked down and this will have a knock-on effect to supply chains and directly impact many industry sectors: travel, tourism, bars, restaurants, sports, festivals, etc. The list is endless.
How crazy has it been? On Thursday, March 12, both the S&P 500 and Dow Jones Industrials fell 10%, the worst day for stocks in 32 years. Pretty much any day in the last week could have been noted as one of the best markets days or worst due to the yo-yo volatility.
Add it all up, and history says the best move is to buy now, and certainly not sell. This is the time to circle the wagons on your existing investments, while looking to deploy extra cash methodically into the best stocks that are now selling at big discounts.
Where there is a collapse there is also an opportunity and this should be considered as to what is the best strategy. There is probably no better time to consider buying into the markets with smart investment choices.
One thing I keep getting asked is: “Should I sell down and go into cash only now?” The answer is absolutely yes if you want to be eating cat food in about 5 years’ time. If anything, you ride it out—long-term investors win.
There are a raft of stocks that are literally “On Sale” right now. Consider the following and the logic behind them.
FedEx is a good bet during the coronavirus situation—as COVID-19 continues to spread, there will be demand for more deliveries as consumers look to avoid crowded stores. That’s where the freight and logistics company can benefit from an uptick in traffic, which could make for some strong quarters ahead. Online shopping plays a big role in the economy, and while there might be some short-term pain for FedEx’s stock, over the long term it may recover a lot sooner than others will.
Amazon (NASDAQ: AMZN) is a good buy for very similar reasons. It doesn’t pay a dividend, but the tech stock is near its 52-week low as well. It still has a high forward P/E ratio of more than 50, but that’s not unusual for the online retailer, which investors typically value highly thanks to its growth.
These are just 2 reasonable suggestions of how a stock can benefit from the change in behavior. How long do we see this before it all starts to come back to some normality?
That is the 64-million-dollar question that everyone wonders. Most investors are longer-term investors and for the smart ones it makes the question redundant. Trying to play the short game most often leads to failure and loss.
It is quite hard to not find an area to invest in. The perfect storm occurred with the ongoing war between Russia and Saudi Arabia, which kicked over the oil pricing war. The timing could have not been better. My personal view is we are going to go lower yet between $20 and $30 a barrel. It is unsustainable in the longer run and both OPEC and OPEC+ (Organization of the Petroleum Exporting Countries) will have to sit down at the negotiation table at some point. Break-even point has already been broken for both the major players. As always, do your own study and make an informed decision on your own or come and talk to me directly.
Many people will have questions and uncertainty during this period. But keep in mind that emotions make for terrible investment decisions. Now is not the time to allow emotions to get in the way of an investment decision.
The reason it’s hard to buy right now.
Watching the value of your portfolio plummet so far over such a short period of time hurts. According to scientific studies, your brain responds to financial losses in the same way it responds to physical pain. This explains why people sell during periods of uncertainty. Losing hurts, and people act quickly to avoid further pain.
The opposite side of the psychological coin explains why it can be so hard to buy right now. As much as it hurts to lose, the pleasure we gain from a winning investment doesn’t feel as good as the pain from losing hurts. Your brain is telling you “it’s going to get worse. Get out now and stay out,” in an effort to avoid further suffering. This is an evolved response that’s baked into our DNA.
The problem will become worse if and when we end up in an “I told you so” moment. Instances such as what we are witnessing right now only come around very infrequently. It will always come down to how much you can stomach.
But one thing is always true. “You have to be in it, to win it.”
Photo by 50Fish