The Market Craters. Now What?
To those of you who follow the markets, these last few weeks have been anything but normal.
I'd say for the majority of us who hold bullish positions in our trading and retirement accounts, this recent movement has been stressful, bewildering, and most of all, scary.
This time around the huge drop isn't because of the dire financial conditions that existed in in 2008-2009, but because of a mysterious virus (coronavirus) that has affected just about every part of the globe.
As we grapple with the new and altered versions of everyday life - school & university closings, community events cancelled, sports activities of all levels cancelled, corporations on reduced or work-at-home schedules, day-care disruptions, and all other retail, food & mall closures, we're not so sure how to deal with all of that happening at the same time.
And as we all try to practice "social distancing", we wonder about - what, where, when & who can we come in contact with and under what conditions? What do we need to do just to take care of the basic necessities?
These are all valid questions, and rightly so, since this is so new to everyone.
But I'm encouraged by how the world has tackled the problem so far, and by the incredible amounts of intelligent healthcare professionals, infectious diseases experts, and top-notch scientists who are on the case.
And as we speak, vaccines are being worked on which hopefully can come to the public much sooner than anticipated.
We will get though this!
As the virus spreads throughout the world, we have seen how it has affected the markets.
Selling has been fast and furious, dropping quicker than any other time in history. The market hates uncertainty, and this was an extreme case of it.
Everything was affected and sold - even gold, which is mostly bought up in times of crisis. And bitcoin was slashed in half this week too.
But, we have been through this dance before and things will pick back up.
Yes, businesses of all kinds will be affected, from the biggest to smallest. But it's not going to last forever and most will be back on their feet in a few months. As a global population, we cannot allow this to defeat us. And we won't!
It's scary to even think about buying stock at this time, as we're right smack in the middle of this crisis and we have no idea how deep or how long it can last.
If you think back to the 2008-2009 financial crisis, the last thing anyone wanted to do was to buy stocks. Everyone thought the world was coming to an end. And it was at that most extreme pessimism when things started to rally.
It will be the same again in this case.
Unfortunately there's no way to tell when the bottom will hit (no one rings a bell), and I think we may even have more room to fall. But to take advantage of the situation, I personally will be buying in small increments along the way. This will allow me to buy the stocks I like at various price levels. At some point, the bottom will hit.
My suggestion to you is to make a list of buy candidates that have been on your radar. This could end up being a great opportunity. If you kicked yourself for not getting involved after the market bottomed in 2009, then this could be your second chance.
Please take your own financial situation into account before embarking on any kind of plan right now. I'm not suggesting in any way to use this as the all-clear signal and/or to go all-in.
I'm in the same boat as everyone else, and I don't know how or when the selling will be over, but if you have some dry powder (excess cash reserves), then making your buy list and implementing along the way, could be a very good strategy.
Stick to the strongest of the strong and long-time high-quality companies. These could consist of the best dividend payers (dividend aristocrats) and stocks that sell products that are in demand all year round.
I gave a few suggestions in my last blog post, and although some of those stocks have dropped even lower, some are higher. This is why it can be beneficial to buy in increments.
In addition to those potential plays, I also have my sights set on Coca-Cola (KO), AT&T (T), and Walmart (WMT).
Now remember, these are not actual recommendations, so please don't take them as such. But they are companies that I have on my radar and will highly consider buying some shares at various intervals.
If using the options market is something more your speed, you can always consider strategies such as put-selling, which at this time can be used to potentially buy these companies at 50% discounts to their already depressed levels.
Or, if you feel the bottom may be here, using a strategy such as buying deep-in-the-money call options can give a limited-risk, yet unlimited-reward opportunity for much less cost than buying the shares outright.
Please stay within your comfort zone if considering stepping into positions in the near future and use tight risk control measures.
Wishing everyone safe and healthy days ahead as we all try to navigate the new normal.
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Until next time...