Some millennials and Gen Zers found themselves unemployed and bored during the Covid peak, but also gained sudden access to cash thanks to stimulus programs and increases in federal unemployment benefits. And the market crash caused by the pandemic provided an easy entry point for investment.
The casino was open and everyone was winning big. These new investors had less wiggle room when it came to losing money, but hey, they never experienced a market crash or recession.
For novice investors, things change quickly.
Buy first, ask later
Charlie Munger of Berkshire Hathaway described the stock market during this period as “almost a speculative mania”, adding that “we have people who know nothing about stocks, who are advised by stockbrokers who know even less.”
But experienced professionals say that this is not an option. Here’s what they offer.
Don’t panic, learn from it and keep going.
Investors may panic, Grochowski said, but they shouldn’t completely withdraw from the markets.
“Honestly, I hope the lessons learned are that a ‘buy first, ask questions later’ strategy is never a good strategy — and that fundamentals and valuation do matter,” he said. “This will prove to be a better entry point than an exit point for long-term investors.”
Grochowski acknowledged that “this is a test” for investors who are suffering big losses, but he believes that “the market will get better ahead.”
Other longtime investors also preached the need for perspective.
But “every second bear market in history is a huge buying opportunity until the next,” he added.
How to survive a recession
She recommends that active investors choose stocks based on factors such as cash-rich and low-debt balance sheets, positive earnings changes and low volatility.
Saunders noted that sharp upswings are the norm during bear markets, but investors should be prepared for an extended downturn. “Aggressive Fed policy, liquidity reversal and economic slowdown are likely to put pressure on stocks,” she added.
Given all these concerns, the advice to “don’t panic” may seem like difficult advice. One way to avoid this is to make sure you have enough off-market resources to weather the crisis,” said Mark Ripe, managing director of the Schwab Financial Research Center. If you can hold without relying on that money in the market, you don’t need to bottom out and risk missing the inevitable bounce. (Remember, past bear markets have generally been shorter than bull markets.)
So, despite economic uncertainty abounding, investors should remember that volatility is essential to boost long-term stock returns, David Kelly, chief global strategist at JPMorgan Asset Management, wrote in a recent note. Kelly also advised investors to remember that a diverse portfolio reduces risk, valuations are a good indicator of long-term profit potential, and invest with logic, not emotion.
“Very often the best time to invest is when people are most scared and confused,” Kelly writes. “In the world “?” investment principles deserve “!”.