Yes, the stock market will likely go down. Here is why you should invest anyway.
And after? Every investor is probably asking this question. Some think the coronavirus bear market is already over, with a new strong bull market poised to roar (perhaps “moo” is the most apt term). Others believe we haven’t seen the worst yet and that the market rebound over the past week will be short-lived.
The truth is, no one knows for sure what is going to happen in the stock market. My best guess is that it will likely decrease. But even if it does, I won’t change my investment strategy. I don’t think you should either. Here’s why the smartest approach is to keep investing regardless of what happens next with the market.
Image source: Getty Images.
Why the crisis is likely to continue
I wrote that the coronavirus bear market is likely to get worse before getting better a few days before the stock market rebounds well. Despite the rebound, I still think the premises of my prediction still hold true – although I would be happy if it turns out that I was completely wrong.
There is an old adage that “bull markets climb a wall of worry”. That may be true, but I suspect the reasons for the short-term concern will present a hill that is too steep to climb.
Most Americans realize that the number of COVID-19 cases has yet to peak. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, recently said he was ready for 100,000 deaths in the United States. If the death toll is that big or even higher, I think it will burst the balloon of any irrational exuberance among investors that might exist.
In the last week of March, 6.6 million Americans filed for unemployment – a record high. Economists also warn that the number of unemployed will continue to soar.
And the results season has not yet fully arrived. My hunch is that we are about to see a wave of companies missing first quarter estimates and withdrawing or reducing their full year forecasts.
Could stocks increase in such a dismal environment? Perhaps. But I would say the chances are much greater that the market will go down over the next few weeks and months.
Some might think that the best strategy is to avoid investing in stocks until it looks like the worst is over. I do not agree. My plan is to invest anyway, whether the market collapses or takes off. There are three main reasons why I take this approach.
First, my chances of timing the bottom of the stock market are slim to none. Yours too. The market almost always bounces before the overall economy. We cannot simply wait for unemployment to start falling again or for business performance to improve.
Second, some of the stocks I love are likely to swim against the grain and rise even if the market continues to fall. This is exactly what has happened so far this year with several of the stocks I own, including Sciences of Gilead and Teladoc Health.
Third, and most importantly, I have a long-term investment horizon. When I buy a stock, I expect it to go up and down along the way. I only invest in stocks of companies that I believe have great growth prospects over the next decade and beyond. While I am not sure how long the COVID-19 outbreak will affect the stock market, I am convinced that the crisis is only temporary.
My investment approach
So do I go on a buying frenzy, picking up stocks left and right? No. My approach to investing during this unusual time is to buy stocks gradually over the next two to four months.
I researched a long list of stocks, rating each stock on multiple criteria including growth prospects, business moats, financial strength, dividends, and management teams. My plan is to buy the top stocks on my list in stages, spending a third of my allotted stock money on the first purchase, another third a few weeks later, and the last third a few weeks later. I won’t buy fundamentally with this approach, but I still expect to buy high quality stocks at attractive prices along the way.
My list of potential stocks to buy is too long to be included in this discussion. However, I’m going to highlight a few to highlight what I’m looking for.
Brookfield Infrastructure Partners (NYSE: BIP) tick all my boxes. The company owns a wide range of infrastructure assets, including cell towers, data centers, power transmission systems, gas pipelines, ports, railways and toll roads – the types of assets that present strong barriers to entry. Brookfield calls itself “growth” because it offers the security of a utility stock with strong growth prospects thanks to its strategy of selling less performing assets and reinvesting in assets offering better growth opportunities.
The company’s management team has an excellent track record. And they are economically prudent, preventing the company from taking on too much debt. I really like Brookfield Infrastructure’s dividend yield of over 6% and believe the company is well positioned to maintain dividends paid going forward.
Guardian health (NASDAQ: GH) is a very different example. The company is a pioneer in the development of liquid biopsies, blood tests that can detect cancer by identifying fragments of DNA that break off from tumor cells. Guardant Health has a big head start in the field of liquid biopsy, with two products already on the market for which sales are skyrocketing.
Of course, Guardant Health is riskier than Brookfield Infrastructure. It is not yet profitable. However, its growth prospects are absolutely gigantic. The company is expected to have an addressable market of over $ 50 billion, and it is capturing only a portion of that market at this time.
I already own both of these stocks and plan to gradually increase my positions in the near future. Like the entire stock market, Brookfield Infrastructure, Guardant Health, and the other stocks on my list could go down in the next few months. But I will still buy them. And I think they will be winners for me in the long run.
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Keith Speights owns shares of Brookfield Infrastructure Partners, Gilead Sciences, Guardant Health and Teladoc Health. The Motley Fool owns shares and recommends Gilead Sciences, Guardant Health and Teladoc Health. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.