So you are thinking of buying shares at the moment …

A lot of people are now considering whether or not to take the extra money they have and put it on the market. Many fund managers that I have talked about over the past two weeks are investing a little here and there, but they are also cautious because another drop could occur, especially if the quarantine lasts longer than expected, if a vaccine does not make it. do not. arrive in 12-18 months as expected or if more people die or become ill than expected.

For those who wish to buy stocks, the cost average in dollars is a good approach. If you have, say, $ 12,000 set aside for investing, put $ 1,000 on the market each month. If the stocks fall again then at least you only lost a little of that investment and then you can buy again when the stocks are lower. It will probably take some time for the market to fully rebound, so if it goes up you can make money going up.

Perhaps the most important question right now is how should you buy? Which sectors could rebound faster than others? What kind of business fundamentals should you pay attention to in a time like this?


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Buy dilapidated asset classes

There is an idea in investing that what goes down must come back up. This particularly applies to certain types of asset classes, such as stocks, bonds and gold. When one asset class has a bad year, it seems to bounce back the next. For example, in 2008, the S&P 500 fell 36.9%; in 2009, it was up 25.9%. In 2008, the MSCI Emerging Market Index fell 52.2%, then rose 78% the following year. In 2015, the worst year for stocks since the Great Recession (then), the S&P 500 only rose 1.4%; it increased by 12% the following year.

In 2016, I written about this strategy of buying the wrong asset classes in the hope of making money on a rebound, and it seemed to be true. (However, a good year is often followed by a bad one.) This does make sense: if you buy low and sell high, a year that is low or yielding modestly could signal a buying opportunity, while a year strong might suggest that it is time to take profits, which in turn would cause an asset class to fall. Will the same thing happen this time? It’s hard to know given the scale of the job losses and the devastating impact the crisis has on the economy, but at some point those battered asset classes and indices are set to rise again.

Stick to historically strong sectors

All sectors have been affected, although some have fallen less than others. US energy stocks have fallen about 50% year-to-date, the most of any sector, while consumer staples have fallen the least, by about 12%. In Canada, our two main sectors, energy and finance, fell by about 40% and 30% respectively.

The ‘what goes down must come back’ theory doesn’t always work on a sector basis – Canadian energy stocks have underperformed for years – but you might want to take a look at historically successful industries that have suffered a downturn. blow over the past month.

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