For many the COVID-19 virus has resulted in the euphoria of investing on Wall Street evaporating. Yes, watching your portfolio cascade downward, after clawing its way upward for one or more years can be gut wrenching. So, it should come as no surprise that a degree of emotional fortitude is called for.
To help with that fortitude, consider that history is on your side. Recent data indicates that our gross domestic product (GDP) is contracting at an annual rate of 4.8%. Moreover, it is only the 13th quarterly decline of more than 4% since 1949, according to data compiled by Bloomberg. After each previous instance, the S&P 500 gained more than 10% during the next 12 months.
Yet, any decline in the price of a stock translates to a potential buying opportunity. Furthermore, market performers, those companies whose share price has fallen due to one or more exogenous factors, will often see a price recovery much like the proverbial Phoenix. So, if you were not fortunate enough to board the train the first time around, you may have another chance.
As we suffer through the current economic conundrum brought about by the coronavirus, there is an outflow of deprecating comments that inflame and subsequently hinder your efforts to effectively deal with the calamity at hand.
If you have not already done so, now is time to step up the bar and take responsibility for your financial future. Yes, Wall Street has been volatile, and the major players have shown little inclination to do anything but line their own pockets and the rest of the world be damned.
Not to ruin your day but the financial markets have always been driven by greed, as are most markets. Furthermore, the wealthiest are often the greediest. This is no sudden epiphany; it has been so throughout history. Technology and time have merely changed the way and speed with which we do business, not the seemingly insatiable desire for ever increasing amounts of wealth.
However, the Street’s antics should not be an impediment to your investment decisions. When you invest in individual stocks you are not buying the market, or Wall Street or the continually touted Dow Jones industrial average. Instead, you are creating partnerships with approximately 12-15 high quality companies whose projected future success coincides with your analysis of their prospects.
The uncertainty over the direction and health of the economy will continue to reign supreme during the months ahead. It will also result in bargains on Wall Street as companies, caught in the mandibles of diminishing economic activity, report lower earnings. The consequence of which is a spawning of lower share prices and the ensuing shrill cries of discontent.
Nonetheless, selecting candidates is not rocket science. If you have the wherewithal to be able to write your name and address and can use a a computer, you are half-way there. Now all that is left is to steer your search in the direction of large, unappreciated dividend paying companies.
Keep in mind the wisdom found in Ecclesiastes 11:1-12, “Cast your bread upon the waters…for you do not know which will succeed, whether this or that, or whether both will do equally well.”
Think of the investment world as an ocean of opportunity capable of increasing your wealth. However, you need to undertake the risk of casting your investment dollars upon its waters and have the patience of Job. Therefore, ignore the inflammatory rhetoric and instead use share price declines as an opportunity to strengthen your portfolio.
Although I remain a strong proponent of long-term investing, Wall Street and the economy have undergone a rather dramatic upheaval. Call it an epiphany of sorts if you like but you can no longer assume that the share prices of even the highest quality companies will continue to perform as in times past.
Therefore, you need to manage your investments with an eye towards both fundamental corporate performance and the direction of the economy. Simply put, you need to align your portfolio with current economic and market trends, as necessary.
Lauren Rudd is a financial writer and columnist. You can write to him at LVERudd@aol.com. Phone calls accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to www.RuddReport.com.