Investments for When the Market Falls

Despite continual nay-saying, the bull market has continued on its course, driven by profits. Corporate earnings may be taking a nosedive as we see from the most recent quarterly projection from Apple. In fact, as the coronavirus takes hold in countries outside of China, there is concern of a global economic meltdown. The New York Times writes about the threat of a pandemic in Italy.

As Italy locked down 50,000 people in 10 towns to contain the first major coronavirus outbreak in Europe – and a fifth person there died from the virus – a growing nervousness pervaded the continent, with officials in nearby countries pledging to keep the outbreak from spreading further.

The virus is also affecting Milan, the country’s economic engine, though the city is not currently under quarantine. The stock market in Milan dropped more than 4 percent on Monday, and many tourist attractions, including the city’s famed cathedral, were closed.

Outbreaks in countries neighboring China have surprised no one but more cases and deaths in Iran and now in Europe threaten to drive the world into shutdown mode. Samsung has closed a factory in South Korea and many Chinese companies that are deep in debt are likely to collapse as the country remains largely in shutdown mode.

How Bad Will the Investment Scene Get?

Cramer of Mad Money thinks that the effects of the virus on companies will be more severe than thought.

“The virus is totally underrated,” Cramer said at the end of last week.

“What I think is a little too premature is they all presume that it is going to be solved within a foreseeable time frame,” he said Friday. “At what point do we say that many, many companies are going to be hurt by the virus [and] we’re paying too much for stocks?”

This is the sort of thinking that will lead to a big selloff.

Investments for When the Market Falls

Several months ago we wrote about Warren Buffet and his silent warning for investors. The Oracle of Omaha has been accumulating billions of dollars in cash as he and his crew do not see any investments with acceptable intrinsic stock value. In an interview on CNBC he reiterated his intention to invest in quality with time horizons of twenty and thirty years.

As the coronavirus outbreak sparks fears of a slowdown in global growth, Buffett closed the CNBC interview saying his long-term outlook remains unchanged.

“We’re buying businesses to own for 20 or 30 years. We buy them in whole, we buy them in part and we think the 20 and 30 year outlook is not changed by the coronavirus.”

You can try shorting stocks in anticipation of a market crash and run the risk of getting burned like in the recent Tesla short squeeze, or use Buffet’s long term approach for investing in stocks and consider the staying and earnings power of companies like Apple, your favorite banks, or anyone else with the capacity to grow earnings over the years. One thing we would like to add is that considering the likelihood of trouble because of the coronavirus, companies without a lot of debt and other margin of safety positives will be good idea in the near term.

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