The question on the lips of investors, commentators and companies alike is… are we at the bottom? Should we be buying stocks in lockdown?
What this means is, have the prices of stocks and shares reached a bottom. Is now a good time to invest?
Honestly, I have absolutely no idea. I would have a stab that the market has decided that the massive prohibitive affects of the virus and the resulting lockdown are now priced in. That the market is happy with the stimulus measures that governments across the globe have taken to backstop struggling industries and economies. But all of that is just rationalising. I am trying to rationalise the fact that stocks APPEAR to have reached their natural bottom in the last two weeks and are rebounding.
Rationalising a live experience like this is pretty dangerous. It is fraught with bias, am I rationalising it because I want to justify my own pre-existing belief or wants? Of course I want the world to return to normal and the stock markets/economies of all countries to return to relative strength. But, again, I do not actually know if we are at the bottom of the market, nobody does.
There is a very tidy counter-argument to this. That we are not at all at the bottom as the time-lag of the lockdown will only be seen in economic data beginning now and spanning as long as (insert number, at least 6) months. That just because China, South Korea and Germany seem to be coming out of the other end of the transmissions, this does not negate the fact the USA, UK and Russia seem to be in a massive pickle.
Buffet has been in the news a lot recently. He has announced record company-wide losses and has just held his infamous Annual General Meeting. But it is something he said many years ago that is ringing true for me and my readers alike… “When the market turns, it is fantastic news for net buyers of stocks”.
This is because we are not at all in retirement. We are able to purchase stocks at a discount to where they were 3/6 months ago. Yes the market may have further down to go, but if you are intending to hold stocks for a long time, then it will undeniably come back round (as long as you are diversified and patient).
This is not quite the case for those in their retirement. That does suck a bit and I am not going to say that there is a terrific amount of upside to the situation, but there are a few:
- Net spending will be massively reduced due to the sheer inability to spend money on activities
- If you have invested all of your lifetime, you will have taken advantage of much larger bull runs (the most recent was ~300% on the S&P, this ~30% reduction will not so much as hurt a little, not a lot)
- With financial advice, it may make sense to reweight your portfolio back, slightly, in favour of stocks when we are out of this and also derive some benefit from the slight cheapness
Buying stocks in lockdown
The main reason I am buying stocks in lockdown, is because this is part of my life plan. This is not a ‘timing the market’ scenario any more than it is the period in my life in which I am heavily weighted towards stocks. My portfolio performance really hurts in some places. It has done pretty well in other places. I am sticking to my plan and have taken the decision (or lack thereof) to accept any more losses before the market returns to growth.
I did not need this pandemic to tell me that the stock market, economy and policy aren’t always a perfectly oiled machine. However, a simple thought experiment: there has been a 300% bull run in equity markets over the last 12 years. With over 100% returns in many other popular asset classes, where is all this money now? Well of course, some of it has been written off due to the downfall in all risky asset classes over the last few months. The vast majority, though, is dry powder. Dry powder is investment money which is held as cash. Pure cash and generating minimal returns. It is dry powder and, to continue the metaphor, people are waiting to wet their powder. Money is waiting on the side-lines and there will always be an appetite to invest.
What am I saying?
I am saying, regardless of your situation – hold your nerve. If you do not like the investment picture at the moment, do not invest. Stocks could fall another 30%, they nearly did exactly that, in this pattern, in 2008. If you are looking to invest, do not deter too far from your long term plan and remind yourself that stock investments are to be held in tax-efficient settings for a long time. Do not try to time the market, try and be in the market for time.
See here to view my other posts during Covid-19 lockdown so far: