How To Play This Volatile Market

Over the past few weeks, I have been on the phone with tons of different market participants. Some are professional investors, people investing a little of their own money, financial advisors who manage a few million and others who manage hundreds of millions, and to first-time investors in their 20's, 30's, and 40's and even one as young as 17 years old.

While everyone wants to talk about what is going on or wants to know what to do or has a strong opinion on what to do within the market, only one thing holds true of every person I have spoken to; no one truly knows what is going to happen next.

Let me emphasize that, "No one truly knows what is going to happen next."

This is true for the people I have been speaking with, investors who managed billions in hedge funds or retirement funds. The Jim Cramer's or other talking heads on CNBC, the President of the United States, nor Congress, nor the Pope himself, knows what is going to happen next.

Although some people may tell you they do or just be very convincing that they do, let me assure you, they don't know what the market is going to do tomorrow, next week, next month, or the rest of the year.

And let's be clear, this would all be true whether or not we're in the midst of a pandemic or not.

However, you can't blame people for making predictions or looking at the past performance of stocks following significant economic turmoil. Comparing the past and trying to find similarities to help us make 'predictions' is very common and can be useful at times, but that doesn't mean we should blindly follow those predictions. (This is even true for my suggestions.)

So, if no one knows what's going to happen, then what should we do?

Well, first, let's talk about investing and what it's all about. The premise of investing in the stock market is that you buy shares of a company at a specific price today with the hopes that they will be worth more at some point in the future. With that in mind, the best time to start buying is after stock prices fall for the simple reason that they are now cheaper than they recently were.

However, that doesn't mean they can't get "even" cheaper in the future. My colleague Noah Kiedrowski recently pointed out on March 21st that investors 'should start buying stocks after the major indexes had fallen 20%'. His reasoning was because in the past when the market has fallen 10% or more in 5 days or less, the major indexes have typically bounced back rather quickly.

Furthermore, data going back to the 1930s shows that investors who have missed the S&P 500's 10 best days in each decade, would have produced returns of just 91%, compared to a return of 14,962% for those investors who didn't try to 'time' the market and rode stocks down then back up.

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I 100% agree that investors shouldn't try to time the market and that if you do have 'cash' available, you should start buying. But, be smart about how and when your buying at a time like this. Being smart is really nothing more than being able to 'control' your emotions.

The absolute most important thing to do right now, next week, next month, or the coming year is to keep your emotions in check when it comes to your investments. The best way to keep your emotions out of your decision-making process is by writing down your plan of action and then sticking to it.

My plan, for example, consists of finding 'quality' companies and or industries that you believe will be able to weather this storm. I think companies like (AMZN), Google (GOOGL), Apple (AAPL), Johnson & Johnson (JNJ), Waste Management (WM), just to name a few, are some of the companies that could potentially thrive during this storm. Amazon and Johnson & Johnson may thrive, while the others will likely see some downturn, but will be able to ride this wave and get back to business as usual once it's past.

Once you have found quality companies, then start buying on days when the market falls. But, it's not just blowing your whole cash reserve the first time the market falls. You should be slowly, very slowly buying. Perhaps, like one financial advisor told me he was recommending to his clients, buy 1/10th of what you eventually want to own each time the market has a big down day or a combination of down days that equals a few full percentage points decline.

For most investors, that is a lot of work and a lot to keep track of if you have 10 stocks and are buying 1/10th of what your full position will eventually be each time the market falls a few percent. To make things a little easier and less confusing in terms of how much money you can allocate to each stock and each time you buy, my recommendation would be to start buying an all-inclusive Exchange Traded Fund or an industry-specific one.

Examples would be the Vanguard S&P 500 ETF (VOO), which tracks the S&P 500 index. Or the Technology Select Sector SPDR Fund (XLK), which tracks an index of the S&P 500's technology stocks. If you think Biotech is going to do well due to everything that is going on, you could buy the SPDR S&P Biotech ETF (XBI). Say you think online retail is going to end brick-and-mortar retailers finally, then buy the Amplify Online Retail ETF (IBUY).

I am not specifically recommending one ETF at this time. Just giving you examples of why buying ETFs as opposed to individual stocks is not only an easier move but perhaps a safer move today. Since not only do we have no idea of how long this whole Coronavirus situation is going to last, we have no idea which individual companies are going to thrive, survive, or collapse. Buying a bundle of stocks helps reduce your risk, which isn't that why most of us have recently dramatically changed our daily routines? Just add that risk reduction theory to one more aspect of your life.

Matt Thalman Contributor - ETFs
Follow me on Twitter @mthalman5513

Disclosure: This contributor held long positions in, Waste Management, Apple, and Google at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from for their opinion.

2 thoughts on “How To Play This Volatile Market

  1. ETFs are for simpletons. These are “products” sold by salesmen. If you cannot read a balance sheet, or statement of cash flows, and make a decision, then do not pass through the gates.

  2. ca. 1950's market guru and textbook writer Benjamin Graham had an interesting strategy for staged buying on downturns. If you want to buy about 10,000 shares in 10% installments, don't buy 1000 shares each time. Instead, set a budget and spend 10% of the budget each time. You will be able to buy a few more shares at each lower price than at higher prices, and your average cost per share will therefore be a little lower than if you bought in equal quantities. This can add up.
    I believe he called it "dollar cost averaging".

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