What if I told you, despite the widespread panic in the world, now is the time fortunes are made? If you’re curious to know the secret to making money amidst the coronavirus pandemic, keep reading. It’s not as hard as you think.
Emotions Drive Short-Term Moves in the Market
The reason stock market corrections are so worrisome to investors is that human nature is to follow the crowd. Likewise, if prices are soaring, the knee-jerk reaction might be to rush in and buy before prices get too high.
But, this often means you’re rushing to buy a stock for $50 today that you very well have purchased for $40 yesterday. Who’s the fool now? Wall Street will happily take your money if you’re foolish enough to throw it away.
The opposite is also true. For fear of losing everything, many often rush to get out. Again, this might mean you rush to sell a stock that was valued at $50 yesterday for $40 today. That’s no way to make money, either.
Volatility Is More Common Than You Realize
I know I sound like a broken record, but volatility in the stock market is not necessarily a bad thing. And, it’s a lot more common in the stock market than you might realize.
For the past ten years, investors and traders have been relatively spoiled with the bull market. Yet, we tend to forget that the S&P 500 loses at least 10% of its value (not rounded) every 1.85 years.
Not only does it lose 10% every 1.85 years, but smaller corrections of also say 5% is even more common!
You Only Lose Money in a Downturn If You Sell
While specific events or circumstances – like a pandemic- can cause stocks to spike or plummet, it’s essential to realize that this is just part of a longer trend.
Investing is a long game, and almost always, the best course of action is to do nothing.
Legendary investor Warren Buffett has a simple philosophy as to why he’s endured as an investor: don’t jump in and out of the market.
Buffett once remarked that investors should not make emotional decisions. And the only way to control them is to have a plan and to make long-term endurance a big part of it.
Investing is a long game, and almost always, the best course of action is to do nothing.
Over the Long Haul, the Stock Market Increases in Value.
Now, this is significant for two reasons. First, if you bought stocks at the market’s peak, or second, were lucky enough to buy the dip, you made money either way, but….only if you held on to your investments for the long haul.
All of this means that if you buy high-quality businesses and give them enough time to perform (I’d say a minimum of five years), you have an excellent chance to increase your wealth.
A High-Quality Company to Consider Buying
Right now, there are countless quality companies at rock bottom prices. Just look at the healthcare behemoth Johnson & Johnson ($JNJ), for example.
As a provider of medical devices and pharmaceuticals, demand for their products will not be going anywhere anytime soon. In fact, the demand for their products will likely increase due to the current health crisis.
I’d be remiss not to mention that this AAA credit ranking company is on track to raise its dividend for the 58th year in a row.
Why a Panic Sell-Off Could Be Your Cue to Buy
I get it; it can be scary to buy if you’ve just seen your portfolio get gutted. I know mine has, but that doesn’t mean I’m going to sit on the sidelines.
Humor me for a moment and envision this scenario: Your favorite store just announced that everything was 30% off for an unspecified amount of time.
Would you panic and run for the door? Or, would you get greedy and wait because the discount could jump to 40%? I’d say no, you’d probably happily buy up and take advantage of the sales while you could.
The same logic applies here, too.
If you want to make money in the stock market, seeing people panic to sell a falling stock might be your cue to jump in against the current and buy. Consider how that can work for you.
