|
|
|
|
|||||
|
|
|
The positive and confident rhetoric in this article's title comes from the tutelage of the most famed investor, Warren Buffett, and his mentor, Benjamin Graham.
On a day when markets fell mightily following President Trump’s "Liberation Day" tariffs, conventional stock market wisdom from these investing geniuses may come in handy.
Pointing out that panic selling during a market downturn can make investors miss exponential opportunities when markets recover, Graham was a pundit of looking at stocks as being on sale on a day like today rather than being deterred by frightening headlines in the news.
Similar to a sale that may attract consumers to a product or service, Graham would infamously use this sentiment for stocks.
As Graham’s protégé, Warren Buffett took this contrarian philosophy another step further, with the notion that investors should be “greedy when others are fearful”, seizing the opportunity to buy or add to meaningful positions of stocks during market downturns.
Of course, moderation is advised in most financial endeavors with the flip side of Buffett’s most infamous viewpoint advising to be “fearful when others are greedy” and taking profits in stocks when the market hits overhyped peaks which can help avoid risk exposure during a large selloff or correction.
While there have been extended periods where the stock market derails, a simple reminder of its historical performance alludes to why it's wise to keep Graham and Buffett's advice in mind.
This is because the biggest gains in the market are often made when opportunities are presented during downturns and stocks become undervalued. When the market recovers, these investments can yield substantial returns with the most recent opportunity coming during the Covid-19 Pandemic.
Since March of 2020, when the pandemic was officially declared and economic unrest set in, the benchmark S&P 500 and the Nasdaq have soared nearly +100% despite the market’s most recent decline.
Over the last decade, the benchmark has gains of over +180% with the Nasdaq up over +230%. And in the last 30 years which includes the dot com bubble and the financial crises of 2008, the broader indexes have astronomical gains of over +1000% with the Nasdaq soaring more than +1,800%.
Optimistically for those who might have missed out on the “stock market sale” during the pandemic, the decline among the Nasdaq over the last month has been the largest monthly correction since March of 2020, when the tech-centric index fell 12%.
Better long-term buying opportunities may be abundant for big tech stocks such as Amazon AMZN and Apple AAPL which fell more than 8% in Thursday’s trading session.
Amazon, for instance, is now trading under $200 a share again and near its cheapest P/E valuation in the last five years at 31X forward earnings.
In regards to areas of the economy that may offer a safe haven during heightened market volatility, medical stocks have prevailed due to the essentiality of healthcare with Gilead Sciences (GILD) being a notable name that has remained near its 52-week peak and offers a 2.82% annual dividend.
Meanwhile, the energy sector had been a standout led by big oil giants Chevron CVX and Exxon Mobil XOM with the uptick in seasonal demand for gasoline approaching. Offering generous dividends as well, these oil conglomerates could potentially benefit from the ongoing trade war and rising geopolitical tensions which often leads to a global conundrum in crude oil production and a higher commodity price.
Gold and consumer staples stocks may also be of interest with it noteworthy that grocery retailer Kroger KR saw its stock hit a fresh 52-week high of $70 a share today. Used as a hedge against inflation and currency devaluation, the price of gold recently hit a record high of $3,160 per ounce while consumer spending on essential items like food tends to increase during economic uncertainty.
It’s hard to say when the market will hit a bottom as the impact of higher tariffs settles in. However, one thing is for certain, the decline is starting to bring intriguing long-term opportunities and history shows that buying stocks when they "go on sale" during a down period can be extremely rewarding for investors.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
This article originally published on Zacks Investment Research (zacks.com).
Join thousands of traders who make more informed decisions with our premium features. Real-time quotes, advanced visualizations, backtesting, and much more.
Learn more about FINVIZ*Elite