Bearish Market

Market Correction or Full on Recession?

So it’s been a while since my last post and for that please accept my apologies. However, in that post I’d expressed my need to move on from needless speculation and focus more on long term investments.

Wait, NOW?

Yes, unfortunately, I messed that one up big time and my accounts are experiencing the pain as a result…

In any case, you probably know by now that the market is experiencing serious turmoil. The corona virus is everywhere, Saudi Arabia is flooding the oil market, governments are ill prepared, we’re overdue for a market correction, entire countries are shutting down, and the list goes on and on. Basically, it’s mayhem in the markets right now.

We’re seeing epic swings in the Dow Jones, the S&P, the Nasdaq, etc. Down 500 points, then 1000, and just yesterday, 2000 points. I’m not even sure that happened when the sky was falling back in 2008. Nevertheless, it happened and it looks like the worst is yet to come.

Simply put, this confluence of events doesn’t occur often. If it did, perhaps the masses wouldn’t be screaming SELL! Alas, they are… so that’s whats happening, and with no clear floor in sight who really knows how this story will ultimately unfold.

Ok, that’s enough doom and gloom…

Let’s uncover what we know from history. Specifically, what I know from my own history and the information I’ve studied (and actually remembered).

Key Points of Focus during a Market Correction

First, we know markets move. They can move slow, fast, far, farther than far, etc. So let’s not lose ourselves due to the above stated fact that the market is swinging wildly. It happens, nothing we can do about it. Honestly, I think the biggest problem is this historic bull run, we all forget the market can and does do this.

Second, history has taught us that every time the market crashes, it comes back stronger. Honestly, I’m not holding my breath on the stronger part but hopefully I’m wrong.

Finally, look for opportunities to buy great companies at a steep discount. When the market unwinds this way even the good companies get swept up in the mess. Prior to these events finding good, cheap investments just wasn’t happening. Every company seemed to be trading at 50 times P/E. That amounts to percentage gains of 10-20%, which is nice but I’m looking for 500-1000% gains. Sell offs of this magnitude make this a possibility.

Plan of Action

Wait… Before you begin to blindly buy every company please look at the bigger picture. The markets are bleak at the moment so it makes sense to wait and see if price will stabilize. If it doesn’t, expect more downward pressure as people head for the hills to protect their life savings. Additionally, and maybe most importantly, wait until the number of headlines announcing business or countries halting operations begins to wind down.

Side note to remember, without companies or governments, their is no stock market. If the company shuts down, their bottom line and thus the value of that company will suffer. If they government shuts down, there wouldn’t be a “fair” playground for investors. Assuming of course, its fair at the moment. Cough..Cough..Wink..Wink!

I stress that so you’re aware. No good reason to buy into a company that may be shutting the doors for a while. Honestly, I have no idea how far and wide this may spread. Could be 6 months, could be 10 years, no one really knows.

In the simplest words possible. Stay alert and continue to follow your plan. Alternatively, you could have a look at this video I created about trading options during a market correction.

In the end, Faith in God, in your family, and in yourself will be what matters most… Meanwhile, maybe buy some puts. 😉

May God bless and keep you,

Jeff

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