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Topsy-turvy is not exactly the most ideal state investors would want to see in the stock market.
We can’t blame them, but you also can’t blame us when we’d like you to consider another way to look at a bear market – to be exact, the way the world’s most successful investors and best stock pickers look at it.
While everyone frantically looks for an exit, Warren Buffett, Jeff Bezos, and other experienced investors have found new doors to make more money.
They see opportunities where you see danger.
They also know that market noise is often just distracting noise.
Value investors don’t run away from a bearish market. They run to it. And it takes hope, courage, and adequate investment knowledge to do it.
What do they know that you don’t? How do the most successful investors make money in a bear market?
Below are the opportunities they see in investing during a stock market crash:
1. Discounted prices for good stocks
Think about it in the context of shopping. We frequently scour Lazada or Shopee for items, and then wait for the 7.7, 8.8, or the Great Singapore Sale to finally check them out of our carts. We wait for discounted prices knowing we can get the same quality without paying the full price.
A stock market crash is like a huge sale of stocks. Because share prices are going down, you can buy a good stock at a marked-down price.
It’s a pretty straightforward strategy, especially for practical investors. You wouldn’t buy a car at its full price when there’s an offer to have the same car at a discount, would you?
Of course, the first step is to always check the 3Rs and do your own analysis to determine if a stock is really undervalued.
2. Higher margin of safety
If you want to sleep comfortably, you must choose a bed with a nice cushion. In investing, it’s the same. You’re a lot safer investing in stocks that provide you with what investors call a ‘margin of safety’ -- and the higher this margin the better.
The margin of safety ensures you don’t lose money even when the stock you bought dips further. If you have a margin of safety of 30%, this means you won’t suffer losses even when the stock price further drops to 30%.
Because you’re buying cheaper, you’ll have a higher margin of safety. So, when the share price eventually goes up, you get profits; in case it drops, you won’t lose your money. Thus, you can get a good night’s sleep.
3. Profitable returns
Most people are scared to invest in stocks for fear that the market will stay in a slump for years to come.
While it’s true that we can’t time the market, history has time and time again shown us that every crisis comes to an end, that the low points eventually climb up, and that the market comes back stronger after every downturn.
To put it another way, the stock market only takes two directions – up or down. When it goes down, as it has done several times in the past, there’s no other way for it to go than up. And when it finally does, who do you think will benefit? Not those who left, for sure!
This is why value investors see a drop in share prices as an opportunity. After all, they know the rainbow comes after the rain.
So, are you still running away?
Follow our page, @VI College for more investment-related resources!
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Disclaimer: All facts and opinions presented are for educational purposes only. This is not a recommendation to buy or to sell. Please do your own due diligence.
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