Ever since coronavirus shut down the economy, the stock market has been a roller coaster ride. Many people are wondering if this is a good time to get into the market–or to get out.
It’s definitely not the time to sell. For many people, this crisis presents a good time to buy. Buying stocks may sound like a nutty idea when the economy is imploding, but remember Warren Buffet’s advice: “Be fearful when others are greedy and greedy when others are fearful.” Below are just three examples of when I embraced this contrarian view and made out nicely.
When I first started investing back in college, 9/11 happened. During this time American Airlines stock (AMR, now AAL) sank because everyone was so fearful of flying. My father worked for the airliner and we were scared he’d lose his job. However, we knew that AA was a strong company, was working with the unions to keep its staff employed, and was seeking bailouts from the government. I bought my first block of shares in 2002, and again in 2005. I eventually sold all my shares in December of 2007. I arguably held on to these shares too long because I fell into the trap of getting greedy, thinking the shares would keep going up on their upward trajectory. But still I managed to make a 35% gain on this investment. Not bad for a newbie starting out.
Bausch & Lomb got into trouble in 2006 when customers started getting fungal eye infections from its products. The stock price (BOL) fell from the $70s to the mid $40s. Bausch & Lomb had the second highest market share in the sector and was profitable. I decided to invest. I bought shares in May of 2006 during the middle of their crisis. My assumption was that this was a a big hit to Bausch & Lomb but not business ending. I believed they would make things right. Bausch & Lomb settled lawsuits and worked to make its processes better. By 2007, there were talks of Bausch & Lomb going private and the stock price rose to the mid $60s, I decided to sell my shares and I earned a 27% profit.
One of my most lucrative investments was during the Financial Crisis of 2008-2009. (The movie “The Big Short” was among one of the best movies I thought explained the crisis.) The banking industry was in freefall. However, JP Morgan Chase (JPM) was one of the strongest banking institutions at the time and had Jamie Dimon at the helm. JPM absorbed Washington Mutual and Bear Sterns–both of whom crumbled during the crisis. At the time, JPM didn’t need the TARP government program but participated anyway to boost confidence in the program. It was an extraordinary time with a lot of uncertainty, but I was certain that if any banking institution would weather the storm, JPM would. I took a risk and bought shares of JPM in 2009 for $34 a share and and again in 2011 in two lots, once in the mid $40s and again in the mid $30s. I held the shares until 2017. Taking into account the dividends I earned and the profits from the sale of my shares, this investment returned 170% in profit.
The point of this post isn’t to pat myself on the back, but rather to show how in times of great uncertainty and fear, there can be great opportunity. There is a lot of anxiety in the market right now because of coronavirus and it is rattling the markets. Some strong, profitable companies are taking huge hits to their stock prices. Now is the time to find your future BOLs, AMRs and JPMs. Now is the time to make some strategic plays, albeit risky. Look for companies badly beaten up but that you know, because of their strength in cash reserves, past performance and ability to weather this storm, will come out the other side stronger and with a better share price than today. I’ll be posting my picks that I’ve personally invested in too. Fingers crossed I get it right.