The Coronavirus is wreaking havoc globally at a frightening rate with stock markets experiencing unprecedented volatility. So when is a good time to buy shares in these unpredictable, uncertain and volatile times?
The best time to buy shares is when the coronavirus and stock market panic has peaked. This hasn’t happened yet – the curve hasn’t flattened – and no one knows when it will flatten. But when it does, we are likely to see some correction in all the major stock market indices. So whether the virus starts to contract in one month, six months or twelve months, now is the time to think ahead and be prepared to act. Many financial experts are predicting that the road to recovery may take more than one year and they are also predicting that it will be a very volatile ride.
To plan for this moment, consider the following:
- What are your objectives? Are you planning for a long term goal (such as retirement planning for example), or a short term goal, to make a capital gain? If you are in your retirement years then your focus may be on your future income stream. If you are in your 30s or 40s you may consider reviewing your asset allocation or establishing an SMSF to specifically select companies that you would like to invest in for the long term, as you are unable to access your superannuation until at least age 60.
- Remember when you buy shares you are buying an interest in a company. Remember the success of that business depends on the industry it operates in, the quality of their leadership team, their reputation and standing that company has within their industry.
- If you are looking to buy shares in a specific company or companies, firstly check their announcements, in particular:
* Has the company adjusted its earnings forecast? If yes, then this is likely to have an effect on profits, which in turn will affect the earnings per share, and accordingly the share price.
* Has the profit adjustment been in the range of 10, 20 or 30 per cent? In short, the greater the profit downgrade, the greater the share price reduction.
* Has the company reduced the payment of its dividends? If yes, then these shares will be less valuable for shareholders that rely on an income stream from their shares.
- Do not select companies based solely on their dividend yield. Based on the company’s previous dividend payment policy and the current share price, the dividend yield may look very attractive, however, there’s no guarantee that the company will not cut its dividend. So do not select companies based on the published dividend yields.
- Consider the industry that your target company is in. For example, companies operating in the food industry, such as the large grocery companies (that supply staple everyday products), are likely to be a safer investment than a company that is, say, in the travel and tourism industry (where travel can be heavily disrupted by environmental and pandemic impacts, for example).
- Don’t consider only one company in one industry sector, but rather consider diversification. That is, diversify across a number of industries, not just one industry. For example, $100,000 over 4 industries such as Food, Banking, Materials, Telecoms (say, one company in each industry). And remember, if you’re thinking of selecting the four major banks, you are not diversifying as these companies are in the one “Banking and Finance” industry.
- Don’t try to pick the bottom of the market. Rather, consider purchasing, for example, $10,000 parcels per month over 4 months for a total investment of $40,000 worth of shares in the target companies, rather than a one-off investment of $40,000.
- Beware of smaller companies that have a high percentage of debt on their balance sheet. History shows that these companies tend to perform poorly in volatile times.
There is no need to madly rush into the market during this current volatile environment. We do believe however now is the time to do your homework, watch and analyse quality companies and be prepared to slowly re-enter the market when the “green shoots” begin to appear.
Should you require more information about investing in the stock market, please feel free to contact Peter Quinn by submitting an enquiry or calling us on +61 2 9580 9166.