The commonly heard adage is that “riches are made in recessions”. With stock prices of highly affected companies dropping over 80%, is it a good time to buy in?
Disclaimer: There are three things I want you to know before following any of this stock market exploration:
- During these turbulent times, some have estimated unemployment rates in the US to potentially reach as high as 32%! Please do not invest in the stock market if you don’t have an emergency fund of at least six months of expenses, and maybe more considering the uncertain times we are in now.
- If you are a beginner and solely passive investor (ex. you heard that holding broad index funds like VTI is how you should invest) don’t feel pressured into straying from the passive investing path, especially without doing your own research on these companies - you are not missing out.
- I may own some of the stocks mentioned, but am not sponsored by any of them, and the opinions here are my own. I’m also not licensed to give any financial advice, so please do your research before making any investing decisions.
There are plenty of sectors that have gone down in value including the energy sector, the general travel industry and even financial institutions, but here I’d like to explore probably the most affected sector, and explore the three most affected categories.
Here are the three categories that are affected the most by the virus:
There’s a lot going on here, especially when there’s not a lot going on in the world as people stay home. Companies that rely on people that want to travel, have all taken a huge hit.
First off, there’s the airline companies, such as American Airlines (AAL), Delta (DAL) and others as they are down 60-80% in just the last 3 months alone. And whether you agree with it or not, these companies are likely to see bailouts when the time comes.
Next up, we have huge losses on the cruise industry. I would advice much more caution here as many of the cruise companies, including Carnival (CCL) and Royal Caribbean (RCL), as they are not actually incorporated in the United States (see BI article here). This means they are unlikely to see any of the bailout money from the US government. Adding on to that, while airlines are very essential for travel, the cruise companies are generally less essential, and would likely be secondary to the government’s priorities anyways. Many of these companies are also high under debt. With all of that under our belt, these companies have lost up to 80% of their value in the past three months alone. That could be a great deal, if you can handle the risk.
Finally, we have hotels. When people aren’t travelling, they aren’t renting hotels. There are huge drops all around the board. These are doing, on average, a little better than the other two categories, with stock drops in the range of only 50% in the past 3 months. These, while affected, are slightly less affected by the coronavirus as people still need places to stay if they need to be away from home especially for business reasons. These stocks, like airlines, are also more likely to make a speedy recovery as there’s a positive correlation between the number of airline bookings and hotel bookings (see hospitalitynet.org’s take). My picks here are the larger market cap companies that you’ve all probably heard before: Marriott (MAR) and Hilton (HLT). These both have fairly large market caps (10-30 billion) and I hope can better weather the storm.
So should I buy?
Well, like always, that depends, and the bigger question may even be “if so, when?” I am usually a combination of an active and passive investor where I like to keep the majority of my assets in broad index funds while I keep a lower portion in single stocks. I am unsure how this market will fan out - and in fact, no one is. If you can handle the risk, I wouldn’t be opposed to moving some of the money that would’ve been invested anyways to some of these positions. But, I definitely wouldn’t buy without much more reasoning, other than a blog saying “hey, these stocks went down a lot and lost a bunch of value.”
Additionally, I would possibly not dump all of the money I planned to invest into these stocks all at the same time. None of us know if we’ve gone through the brunt of the virus, and who’s to say that can’t drop an additional 50% in the coming month or so. I would time investing portions of my money, and only once a month. We don’t want to be caught up in the thrill of chasing short term rises and falls. For the most part, time and time again, we’ve proven that investing for the long term usually produces more dividends (figuratively and literally).
So buy some, but don’t spend all your money. Then buy more next month, but still keep some of your money back and finally buy more two months later.