In a recent interview with CNN, Amazon founder Jeff Bezos warned the public about the possibility of an upcoming recession and that the financial market is walking on eggshells. This has raised concerns among the people who are willing to invest their money or are already deeply invested in the stock market. Amidst this chaos and concern, I am here to offer a few share market tips and explain why a market crisis might be the best time to invest in the stock market.
1. Cheaper stocks
The biggest reason behind investing during a crisis is to utilize the cheapest stock prices by the companies. A recession is like a sale period in which even the big firms suffer from low stock prices making it a bonanza offer for the investors who may not be able to afford them in normal market situations. Also, the chances of making a profit by selling those stocks in the market increase.
2. Survival of best companies
Market recessions put a strain on every industry’s functioning and the firms are tested in terms of their ability to survive in the market. If the company can survive during the crisis, it is most likely to grow in the long run. Hence, another share market tips is to invest in firms that can sustain themselves during the market crisis. Additionally, the companies that fail to survive during recessions allow the existing firms to flourish in a less competitive market resulting in better growth in a wider target audience.
3. Basic needs never run out
The evergreen cycle of Demand and Supply is the main focus of the next stock market tip. In a normal functioning market, the demand for all products keeps the supply channel constant and the market running. When a nation is hit by a recession, the demand for the products reduces hence, putting the market in crisis mode.
However, there are certain industries in the market where the demand never runs out, one such example is the pharmaceutical industry. The recent covid 19 pandemic is a prime example of this situation. Even when several industries were falling, the pharmaceutical industry witnessed a global growth of 8.4% in the year 2020. Therefore, it is advised to invest in industries that are bound to stay put even in the worst-case scenarios.
4. Crisis is temporary
A market crisis may seem like a never-ending hurdle but concerning it may seem, the market is bound to revive itself in the long run. The growth of the market remains constant over the years and recessions are temporary glitches on their way. Moreover, the government of any nation cannot handle market losses for a longer period and therefore takes all the necessary actions to pull it out of the crisis. Hence, investing money is always fruitful in terms of growth.
5. Crisis leads to innovations
Every crisis in the history of mankind, whether financial or otherwise, has resulted in innovations that have made things better for the future. In this case, when a crisis hits a financial market, bigger firms are free from the competition which in turn gives them more resources to shift into technologically advanced ways.
According to Anthony Durkacz, CEO of FSD Pharma, “It’s widely accepted that being innovative today is getting more expensive, but this is generally okay during good times as access to capital is more readily available so smaller firms can still innovate successfully. This generally isn’t the case during a recession, however, as investors and lenders tend to take a more safety-first approach, which usually favors bigger firms with a proven track record and income already coming in.” This eventually results in more feasible as well as reliable methods of technology which are worth the investment you make in the stock market.
These are some of the reasons why you must consider investing in the share market in times of crisis. However, before investing in a particular stock you must do thorough research on the performance of the given company and the respective industry.