Daniel B. Kline


And here’s why you shouldn’t worry too much about it.

Nobody knows precisely how the coronavirus pandemic will impact the U.S. economy — neither over the next few months nor over the longer term. What we do know is that the number of daily new COVID-19 diagnoses in the country continues to rise, and is now close to twice what it was at its first U.S. peak in late April.

In response, some states are reinstating their lockdowns while others are halfheartedly asking people to wear masks and social distance in hopes of containing the virus.

It’s every state for itself — and that creates a whole lot of uncertainty for businesses. National restaurant chains, for example, face varying rules in each market, which can make it more difficult to operate. Companies in the travel, entertainment, and retail sectors, among many others, face similar problems.

Yet despite the near-endless torrent of bad news, the stock market has been resilient — even downright defiant. At some point, that’s likely to change. But a market crash — while perhaps inevitable — won’t be the disaster you might think.


Bear markets happen

The stock market crashed hard in February and March, but it has largely recovered due to optimism that the economy will bounce back quickly from the pandemic. This upbeat outlook has persisted among traders despite the fact that the U.S. coronavirus outbreak is worse than ever, and some states have slowed their reopening plans or begun to roll them back.

Widespread business closures increase the risk that the market will soon tumble again, but those may not be the key factor that sets off the next bear market. That triggering event could well be the federal government allowing enhanced unemployment benefits to expire.

Currently, thanks to the CARES Act, workers collecting unemployment are getting an extra $600 per week on top of the usual state benefits they would be entitled to. That figure was chosen by Congress with the goal of keeping the average person’s income roughly the same as it was when they were working, but for many whose employers were paying them low wages, it has meant they’re collecting more in unemployment than they previously made.

That added benefit is scheduled to disappear at the end of July — and Senate Republicans have shown little willingness to extend it. At that point, tens of millions of people will experience a sharp income cut, and many will be left without enough cash to pay their bills. That could have a ripple effect across the retail landscape and lead to more people (and businesses) failing to pay their rent. It will also be a blow to the already-reeling restaurant industry, and indeed, pretty much any business that relies on consumer dollars.

While unemployment numbers have improved, more than 10% of Americans are still officially unemployed — a worse jobless rate than the U.S. endured in the worst month of the Great Recession — and that number may shortly start to get worse before it gets better. By taking the $600 a week enhanced unemployment payment away, Washington may well be setting off an economic domino effect that leads to another stock market crash.

Stay calm and invest on

The recent market rebound was startlingly quick, likely due to the unique circumstances that triggered the downturn.

Historically, the stock market has taken longer to recover from such plunges. But eventually, it has always hit new heights again. If it crashes due to the economic impacts of the strengthening coronavirus pandemic, there’s just no telling what will follow.

There could be another quick rebound due to optimism, the discovery of effective COVID-19 treatment options, or the success of one or more of the many coronavirus vaccine candidates already under development. It’s also possible that a lack of those things will keep stock prices depressed for a longer period of time.

But, again, what we do know is that the historic pattern in the U.S. stock market is that busts are eventually followed by larger booms. That may not feel particularly comforting while a crash is underway, but it’s an important thing to keep in the back of your head while you watch a sea of red numbers.

During a crash, take the opportunity to re-evaluate each company in your portfolio. If you still believe in your investment thesis, a down market is a great time to add to your positions.

Consider whether anything has changed for the company in the long term. If it hasn’t and you expect a recovery and further growth, certainly hold and even buy more if you can. Just as important, do not let fear or the short-term movement of the market cause you to doubt your long-term investments.

Author: Daniel B. Kline

Source: Fool: Here’s Why We’re Headed for a Stock Market Crash

It’s perhaps the most-asked question among investors.


Taken at face value, the answer to “Is the stock market going to crash again?” is always yes. Sooner or later, it has to.

Of course, most people aren’t asking the question over a timeframe of forever. What they want to know is “Is the stock market going to crash again soon?” If they can predict when a slide is coming, they can take their money out of stocks and keep it on the sidelines until said crash occurs, after which they can swoop in and buy at bargain prices.

That sounds good in theory. In practice, it doesn’t work. Markets crash, but accurately predicting when one will happen isn’t possible. Given the rafts of pundits and analysts who regularly predict that trouble is coming, every downturn will have a lucky few individuals whose prognostications lined up closely with the real-world results. But anyone who pretends to be able to pull off this trick consistently either has a product to sell you or really likes to see their face in the media. (Or both.)


How do you prepare for a market crash?

Markets crash, and they (eventually) recover. How long a recovery takes varies, but a long-term chart of the U.S. market shows that bull markets over time erase even the worst crashes. (Admittedly, that hasn’t always held true in other countries’ equity markets — for example, the Nikkei tanked in 1990 and hasn’t set a new high in 35 years. But domestically, the rallies have consistently outweighed the declines.)

In light of that pattern, preparing for a stock market crash involves doing just a few things:

  • Make sure you’re not investing money that you may need in the next year — or really, in the next few years. That means that if some of your portfolio is meant to cover college tuition and your kid just took the PSATs, you probably want to start converting some of your holdings into cash.
  • Make sure you own shares in good companies that will come out of any crisis well, even if their businesses might suffer and their share prices fall in the short term.
  • If possible, have some cash ready to invest in shares of good companies when a market drop lets you buy at a discount.

The first two are requirements. The third is nice, but it’s negotiable because sometimes the reason for the crash (like the current pandemic) may impact your ability to earn money or require you to divert capital to more immediate needs rather than using it to build your portfolio.

However, if you have cash on the sidelines, do not try to predict the absolute bottom. Identify the companies you want to own (or want to own more of) and get your cash working even if that means buying before the market hits its low point. Just as nobody can be sure when a steep decline is going to start, nobody can know when the rebound is going to begin either.

Be calm and invest on

Stock markets crash, and stock markets boom. The problem is that nobody knows the lifespan of either condition. That’s fine, and it’s nothing to worry about if you buy shares in good companies and hold them for the long term.

Don’t panic when something bad happens in the broader market and the economy at large. Remember why you bought shares in the companies you hold in the first place, and trust your thesis. Good companies persevere.

It’s never fun to see your portfolio drop in value — especially by a large amount. But you are not playing a short game. You’re invested for the long run, so you don’t have to worry about stock prices on a daily basis. Keep your eyes on your long-term goals and remember that every U.S. bear market has (eventually) been followed by a bull and a new all-time high.

Author: Daniel B. Kline

Source: Fool: Is the Stock Market Going to Crash Again?

Or is it better to wait for the market to bottom out?

You can become a television star — or at least make a lot of appearances on business and investing shows — by pretending you know how to time the stock market. Saying you know that the bottom has been reached or that stunning new lows are coming will get a pundit a lot of attention.

It’s also silly. Nobody can know if the equities market has hit the bottom of any given cycle or if new lows are coming. Nor can they predict market peaks — any number of experts spent the latter half of the last decade prognosticating that the long bull market was “just about to end.” Those who listened to them missed years of share price gains.

Trying to guess which way the wind is about to blow on Wall Street makes you a trader — not an investor. You don’t need to know when a stock has hit a cyclical low in order to be a savvy buyer. Instead, focus on buying shares in great companies that are well-positioned to deliver value in the long term.


The secret to picking the very best time to invest

This is an extreme example, but the chart above shows Amazon’s (NASDAQ:AMZN) stock price growth over the past 10 years. The uphill march wasn’t perfectly steady, but over time, it was overwhelming. Would it really be significant to your returns if you bought shares a few dollars cheaper early in 2010 or if you paid slightly more later in the year? Probably not.

But what if you stayed on the sidelines because you assumed that a quarterly report might bring some bad news that would send share prices down to where you considered Amazon a bargain? In that case, you might have ended up buying later at a much higher price. Or you might not have bought in at all.

The reality is that it made sense to buy Amazon stock at any point over the past 10 years. And, if you believe the e-commerce powerhouse still has room to grow, and that it has strong management that will make good choices, then it’s still a good time to buy right now — even with shares trading near their 52-week high.

There’s never a bad time to buy shares in good companies. You won’t always be right about where the prices are headed in the short term, but it doesn’t matter. You can spread your purchases out over time to smooth some of those movements out. The key is to purchase shares of stock in companies you have long-term strong convictions about and then… do nothing.

Being a long-term investor means worrying more about the quality of the stocks you buy than about when you buy them. Amazon may seem like a unique winner, but it’s not. (Look at Apple or Costco to name just two others that have similarly impressive long-term stock charts.)

Don’t miss out on opportunities by trying to outsmart the market. As an individual investor, your greatest advantage is the ability to hold your stocks for a long time. Buy shares in companies that you believe in. Then, check on each one occasionally to make sure nothing fundamental has changed about the business that invalidates your investing thesis. Other than that, it’s really just about sitting back and watching your portfolio grow, adding to your winners, and trying to identify new companies to invest in.

It’s not that hard (sort of)

Patience isn’t easy, and it’s not sexy. People love telling exciting stories about buying low and selling high. It’s a lot less glamorous to talk about how you steadily built a portfolio over 30 or 40 years that allows you to enjoy your retirement in style.

As an investor, you have to make the decisions that help you reach your goals. It’s not about the story nor even the potential for a quick score. For most investors, it should be about building wealth over the long term, and if that’s your aim, “now” is always a fine time to invest in a great company.

Author: Daniel B. Kline

Source: Fool: Is Now a Good Time to Buy Stocks?

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