“The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.”- Warren Buffet.
The right time to get back in the market may be just around the corner. With global economies sinking, sometimes dramatically, it can be a scary thought to put your hard-earned money on the line. However, a smart investor will realise that golden opportunities are appearing if proper research is done.
It has not dropped dramatically since the financial collapse of 2008-2009, but it is still in familiar territory. It may take another another year or more for a large upswing in the markets, but at least we hope that the Dow will not drop below previous lows. That may bring hope and some peace of mind about starting to invest again.
For investors, the operative question is simple, albeit very broad: In the midst of this crisis, what do we do?
A good rule of thumb: If a stock you are considering for investment depends upon a speedy return to normal, you should be looking elsewhere. Warren Buffett has often said that you should invest in businesses that you wouldn’t mind owning if the stock market were closed for an extended period.
Dollar Cost Averaging
The concept of Dollar Cost Averaging comes to mind in the current market situation. It is the process of buying stocks or similar investments on a regular basis, such as once a month, using a fixed amount of money. When prices are low, you are able to buy more shares. When prices are high, you buy fewer. In this way, you are able to take advantage of temporary low prices. This is especially helpful for long-term investments, such as retirement accounts. It may go against human nature to buy stocks when everything is falling and red but in fact it can lead to a bigger payoff if done correctly.
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