Yes, that’s right, I said it, stocks are still on sale. My ROTH IRA (Individual Retirement Account) earned a 15.95% increase from March 2010 to today. Most of the increase was due to the overall stock market doing better. During the recession, stock prices crashed hardcore. Two things determine stock prices:
- Fundamental value of the company: company’s annual profit, upcoming products/services, and the cash you’d make by selling all the company’s assets
- Perceived value by investors: people’s opinion of how well a company’s going to do in the future
During a recession, the fundamental value of a company changes some and the perceived value changes A LOT. People worry that the economy won’t recover and forgot that recessions happen periodically. They see their investment balances dropping fast, become terrified, and sell their stocks.
Stock prices continue to drop until people feel comfortable investing again. This is the best time to buy! It’s a sale.
Stock prices in a recession resemble a post-Christmas sale—which are the lowest prices of the year. (When else can you buy a $300 Banana Republic jacket for $15?) Think of a recession as a surprise sale (a cyclical discount on stocks).
If you have extra cash now, buy! If you don’t have cash, get ready for the next major sale. It will happen. We’ve had 4 recessions since 1982 (Dec 2007 – June 2009, March 200 1- Nov 2001, July 1990 – Mar 1991, and July 198 1– Nov 1982).
During the next recession when everyone else is running out of the market, we’ll come in with buckets of cash, buy stocks on sale, and bolster the economy! Ha, buying during a recession helps you and helps the national and world economy! Call that my community service message for the day.
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Have you been investing during or after the recession? If not, are you thinking about getting in? Share your experience!
Financially Fab 