Stock Markets in a Slump: A Good Time to BUY?

Last Updated on March 4, 2020

When the Second World War started in 1939, a Yale economics graduate named John Templeton made one of the most astounding and successful decisions of his lifetime. With the markets perilously low post the pre-war slide, Sir John Templeton went to the markets and bought $100 worth of shares of 104 companies on the stock market which were trading at or below $1. Sir John Templeton knew that companies that were being traded were fundamentally strong and were available at a price which was ridiculously below their intrinsic value. And the rest is history. He made a profit on 100 of these companies! When the stocks went up to a price which mirrored their real worth, Templeton was sitting on a pot of gold.

Although such an extreme situation (Second World War) might never happen again, there is a lesson to be learnt here – Investing in fundamentally good stocks in a market slump might be the smartest thing you ever do!

With the markets falling in the last few weeks, investors might be presented with a similar opportunity! But, differing opinions might have left them confused.

But, before we tell what you should do, let’s first look at what’s happening currently in the stock market.

Present Stock Investing Scenario:

Let us put the present market situation into perspective. The markets are in a downswing. In fact the Sensex slumped from its levels of 17300 to 16000 in the last 3 weeks. Let’s see what events led to this fall:

• Much lower than expected industrial output numbers for the month of March led to a slip of 1% in the Sensex and Nifty on announcement day.
• The Sensex fell around 1200 points in about seven days owing to the depreciating rupee which touched it’s time all low of Rs. 54.32. In fact, just yesterday it slipped even lower to Rs. 55 spelling more trouble for the Indian economy. It is expected that the Rupee may further fall to Rs. 60 against the dollar in the near future. In such a scenario, some companies may get affected financially with the falling rupee. Avoid such companies, and choose the ones with strong fundamentals.
• The Greek debt crisis and its probable exit from the Eurozone led to the market falling even further.

With all these negative cues, the media is plastered with news about equity becoming toxic. There is a debate going on about a policy-paralysis by the government which is preventing it from taking some decisions which will benefit the economy in the long term. Investors are pulling their money out of the market and parking it in more traditional instruments such as Gold and Fixed Deposits. This overall negative sentiment is leading to numerous sell moves, leading to a tumble in the value of stocks in the Indian market.

So, is this problem structural or cyclical?

When Mint, a financial newspaper asked this question to Ridham Desai, the Managing Director of Morgan Stanley, he responded saying that the problems are “purely cyclical”. Every economy goes through cyclical ups and downs which can be corrected by fast movement of government policies or capital infusion into the economy. Structural problems on the other hand are different. The presence of structural problems indicates that there are fundamental problems that exist and it could take years before such problems can completely be set right. According to Desai, structurally, our country and its companies remain good. Many Indian companies are fundamentally strong and he expects India will post a growth of 6.5-7%, if not 8%. So, there is no real cause for concern.

So amid all of this, the question persists… is it really a good time to buy stocks?

MoneyWorks4me’s take on this – Invest in Safe Stocks at attractive discounts!

Yes, this is the best time to invest in stocks. But, in stocks that are safe – that have a good past, good earnings visibility, bright future prospects and are available at attractive prices. Wrt. this let’s lay down some facts for you:

• Fact #1: There are several companies which are fundamentally strong and will continue to generate returns for shareholders.
• Fact #2: A lot of good, fundamentally strong companies are trading below their intrinsic value.
• Fact #3: Once the market gets into a higher gear and breaks out of the shackles of this cyclical downswing, it is these fundamentally strong companies which are presently trading below their intrinsic value which will overtake the pack and generate great returns for those with the foresight to invest in them

(To find the out the safe stocks at attractive prices, click here)

And in times like these, you need good returns. Inflation is still sky high and the cost of living continues to pinch wallets. The other side of this story is that FD rates have peaked in the recent past and are now expected to head downwards. Infact recently SBI cut its FD rates by 1%. The Bond Yield remains lower than the FD rate. And while Gold is growing, the present growth rate doesn’t really make it an attractive asset.

In conclusion, like Sir John Templeton you can earn a pot of gold from the stock market too. To give you an example there are many fundamentally strong stocks out of the list of the Nifty 50 stocks (known to be a set of the safest stocks) that are trading at good discounts.

We at MoneyWorks4me.com certainly recommend that investors invest in safe stocks at attractive prices, which will guarantee good returns and even minimize your risk. So, start investing today! But make sure you invest in the right stock, at the right price and the right time.

To find out how to get the Right Stock at the Right Price & at the Right Timing, click here.

If you liked what you read and would like to put it in to practice Register at MoneyWorks4me.com. You will get amazing FREE features that will enable you to invest in Stocks and Mutual Funds the right way.

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