Categories
finance investing

COVID-19: Have We Reached the Stock Market Bottom?

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.

Categories
finance investing

Should You Change Your Investing Strategy Because of the Coronavirus?

Big changes have unfolded over the last two weeks, and with those changes, came questions of recession, depression, or perhaps just a general market correction.
These changes have made a lot of us question our investing strategy; many of us are wondering how bulletproof the mutual funds or stocks we’ve chosen are, now that the world seems to be crashing down around us.
You may be wondering if you should move money into safer assets, like bonds or cash, or you might be wondering if you should switch to other, seemingly undervalued assets now that they’re “on sale.”
These are the wrong questions to ask.
It’s never a bad idea to evaluate your investment plan. It is, however, not a good idea to completely switch your investment strategy during a major market downturn while tempers run high and emotions cloud good judgment.
The selling price of all assets decrease during a recession or general market correction. During a correction is not the right time to wonder if you’ve fairly priced the assets you’ve bought and the soundness of your investment decisions.
You want to come up with your bulletproof plan before the proverbial sh*t hits the fan.
But to get to the specifics, if you sell your investments now because you’re feeling defeated, you’ll likely sell close to the bottom of the fair market value for stocks during the downturn.
If you have a home, you try not to sell it during the deepest parts of a recession because you will get far less for it than if you sell it during a time when real estate prices are up.
To stick with the real estate scenario, the fair market value of your home changes as quickly and as drastically as any stock, but this change is invisible because there is no ticker telling you at any given time what someone is willing to pay for your home.

Selling your investments now is exactly like selling your home because you get scared because someone made a low offer to buy it.

If you’re not sure what to do, meet with a financial professional and review your options.
Do not make any rash decisions. And work on creating a plan bulletproof enough that during the next downturn, you feel confident enough about your investments you don’t even reconsider it.


This article is not meant to constitute legal advice. For help regarding your specific situation, please consult a local professional.

Categories
investing Stocks

What is a Balance Sheet? – “How to Price a Stock”

Welcome to part 1 of our series in How to Price a Stock. 

If you’re here, it likely means you’re interested in learning not only more about investing, but companies in general and how to find their true value.

One of the first financial statements we look at in trying to price a stock is the balance sheet. The balance sheet generally gives us the financial strength of a company at any given point in time. The balance sheet works as a “financial snapshot” of a company.

From the balance sheet, we can see three important things: the Assets that it owns, the Liabilities that it owes, and the difference between these two numbers, the Equity. The Equity in this situation works much like the equity you have in your home. 

As you pay down your debt, the equity you have in your own will generally increase because your equity is the difference between the fair market value of the house (your asset) and the amount still owed on the house (your liability). Looking at a balance sheet, it works much the same way. 

There are two ways to increase the equity of a company, increase its assets, or pay down its debts. Looking at which of these options a company chooses, gives us insight into its management, operational capabilities, and its general ability to be strategic or profitable.

If a company can pay down debt at the same time it increases the value of its assets, it generally is in a more strategic position than companies handling their situation by only doing one or the other.

A balance sheet will generally be set up as follows:

Balance Sheet
as of December 31, 2019
Assets
Cash $1,000.00
Accounts Receivable $2,000.00
Inventory $5,000.00
Equipment $10,000.00
Total Assets $18,000.00
Liabilities
Accounts Payable $2,000.00
Loan Payable $5,000.00
Bonds Payable $5,000.00
Owner’s Equity
Stockholder’s Equity $6,000.00
Total Liabilities and Owner’s Equity $18,000.00

 

Note that the Assets balance to the total of the Liabilities and Owner’s Equity. Hence, the term Balance Sheet. 

Grasping the concept of a balance sheet is one of the first and most crucial concepts on the path to being able to do any kind of financial analysis and understanding a company’s capital structure (where it gets its financing from).

From here, we will be looking at what to do with the information from the Balance Sheet and why we should even care about it.

 


This article does not constitute financial or legal advice. For help regarding your specific situation, please consult a local advisor.