How and why to invest during a crisis

investing in crisis

“The time to buy is when blood flows into the streets,” said Baron Rothschild. One way of saying that investing after a major correction represents an interesting strategy, especially for long-term investments. On the same wavelength as the british banker, also the famous Warren Buffett: to be successful in investing “just be afraid when others are greedy, and be greedy when others are afraid”. But are there objective data that corroborate these visions? How can moments of financial uncertainty offer opportunities to invest on the stock market? And what must be done to make the most of these unfavorable times? The crisis caused by the coronavirus pandemic is not the first or last that we will have to face on the markets.

Earning after a crisis, what history tells us

From 1980 to today there have been 7 bear market phases. At the end of these fogging periods, the markets have always started to grow again. Seeing them on a graph, famous financial crises such as those of 1987 and 2008 also take on different proportions.

investing in crisis

In times of great crisis, but also in those of great euphoria with opposite dynamics, the stock markets are usually decidedly depressed, well beyond the expectations of profitable losses on the balance sheets of the various companies. So, given that even graphically history tells us that after a phase of correction the markets start to grow again, those who have money and a medium and long-term investment prospect could also begin to consider a market entry strategy for take advantage of the recovery.

When do equity markets start to rise again after a crisis?

For historians of the economy there is a typical path of the recovery phase after a crisis. Recalling that “markets discount operators’ expectations”. Thus the share price will rise again when two events occur:

  • the uncertainty that now reigns over our ability to control the epidemic and the actual economic consequences must be reduced, as well as all financial risk factors
  • the economy will have to be in a position to recover

The second point, in particular, is fundamental: the stock markets are fast, they will not wait to see the plus sign to world GDP to return to growth, but they will start to gain positions again following the expectation of an economic recovery.

How to position yourself on the market now?

On the one hand, it is early to predict when an economic recovery could occur, it is also true that the best results could be achieved if you start positioning yourself in time. So analysts point out those who have the opportunity to enter the markets should do so “with foresight and with a view to protecting and growing their assets with a medium-long term horizon”.

And how to do it? One tool that could be good these days, thanks to the fact that it dampens volatility and short-term uncertainty, is the accumulation plan, thar allows to mediate the entry prices, thus reducing the risks of entering the market with less than perfect timing and allows to guarantee an investment discipline.

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DISCLAIMER - Finance Drops is a blog that deals with topics related to personal finance, economic growth and savings management. It does not offer financial advice, the analyzes reported are to be considered general contents for information purposes. Finance Drops articles that talk about money cannot guarantee certain results because the possibilities vary according to the ability and economic situation of the reader. Finance Drops, therefore, cannot guarantee the success of the suggested strategies and does not assume responsibility for imprudent choices made on the basis of an incorrect perception of the contents of these pages. Risk Warning: Past performance reported in the articles cannot guarantee future results. Furthermore, products that allow access to leveraged instruments may involve a high degree of risk of loss of capital. All the solutions mentioned offer truly effective protective measures to manage risk, but sometimes it is possible to lose more than you invested.