You’ve likely heard the advice, “Buy stocks now, they’re cheap.”
While generally, yes, you want to “buy the dip,” because buying anything of value on sale is great! Why pay more when you can get the same thing for less?
Those of us around during the 2008 recession know how bad things got then, but over the last few months we heard more about how much money people made when they bought their investments at the deepest parts of the recession, when everything of value was much cheaper.
The big companies were bailed out, and most American companies not only survived, but did much better in the years following the recession.
Is This Time Different?
What was different during a recession caused by a debt-bomb is there was nothing stopping from businesses from resuming operations, nothing stopping an American out of work from going to their neighbor’s house and offering to shovel snow for twenty bucks.
While times were rough in 2008, there were no state or national quarantines. Companies burned through cash, but had options to curb the bloodletting.
This time, under quarantine, companies are burning through cash and are told they cannot even resume operations in some cases. Who knows how many companies will go under from not having a hint of cash flow for weeks or potentially months.
This time could be different.
I am not advising against investing, just being cautious and making sure any companies you are considering can last a few months worth of cash burn without having any inflow.
This is a critical time, and having cash on hand may be a more stable plan than investing in companies that have no hope of getting you a return on capital for possibly months.
So Have We Reached the Bottom?
Stock prices will continue to be volatile for maybe many months. No one can say when the volatility will stop until the threat of the virus has let up. Unfortunately, they go hand in hand.
If the headlines get worse and not better, the market will dip further and further as more people retreat to cash for fear that mainline American businesses do not have the proper emergency funds to last a prolonged stop to operations.
Read the headlines, stay safe, and think critically. If the virus begins to subside and businesses are allowed to begin reopening their doors, cash flow can resume, and the thoughts of a national recession– or worse, depression– will also dissipate.
At that time, stocks will likely still be undervalued and you can have your pick.
But what do you think? Will this be long-lasting, or do we have nothing to fear?
Sound off in the comments below.
This article is not meant to constitute legal or tax advice. For help regarding your specific situation, please consult a local advisor.