I was interviewed for a Sunday Times article last week. The article was focused on people now working at home but with reduced cost and now running a surplus. One thing I said was if you don’t invest, now is not a good time to start.
At the moment, there is a waiting list of almost 10,000 people waiting to open accounts on the online platform DeGiro . There are plenty of new investors looking to start investing, hoping to buy cheap.
Earnings for the first quarter were out over the last few weeks. Amazon sales were up 27%, Microsoft and Apple saw increases in sales. Add in the other two tech giants, Google and Facebook and they are all going strong. While these stocks were impacted by the initial crash, they have rebounded strongly and are no longer “cheap”.
Not every industry has been hit financially by this crisis. Pharmaceuticals, consumer goods, lots of tech companies are all way up. They are no longer cheap and some may fall in value as we start moving back towards a new normality.
Berkshire Hathaway held their shareholders meeting at the weekend. Usually a big event reserved for wealthy shareholders ($261,800 a share), this year it was online and for everyone to see. Warren Buffett announced that he had sold all of his holdings in US airlines. He had owned about 10% in 4 different airlines, worth about $4 billion in total.
In order to sell these holdings, there had to be a willing buyer, most likely retail investors thinking that airlines are cheap at the moment and a good buy. What do they know that Buffett doesn’t?
We saw with oil the other week, sometimes when the price of a asset class falls dramatically, it is not as straight forward as it seems.
It’s not that long ago that Bank of Ireland shares were trading at €18, AIB at €20.70. 13 years later they are at €1.58 and €1.01 respectively. Unless you got them at the bottom, you are still sitting on massive losses. They may never get back to the price that they were once at.
Meanwhile lots of other, quality companies are being highly successful and making big returns while you are still hoping to win the big one betting on a distressed industry.
Some of these distressed companies will go bust and others will survive. The average retail investor can only hazard a guess which will be which. There is little research carried out beyond reading the newspaper. Given that markets are forward looking, any news is already factored into the share price and you have missed that gain.
Most retail investors do not know what is a good price to buy at and just buy at whatever price is offered on the screen. A professional investor will be a willing seller at these prices. If you are a long term investor, this isn’t wholly important the longer they hold the asset. But I have a feeling that these new investors don’t intend to hold their investments for the long term, they only want to get in, make a quick buck and get out. If you don’t know if you are buying at the right price, it just makes the whole exercise more difficult.
Without carrying out research on an industry or company, it is very dangerous to be investing in the stock market at this time.
If you want to invest, you are better off investing in an index that tracks something like the MSCI World Index or the S&P 500. And invest for the long term, not short term gain.
If you have any questions, drop me an email at steven@bluewaterfp.ie