With share (equity/stock) prices around the world plummeting to the lowest value in decades many are asking:
Economic activity has slowed down, and we still have several unanswered questions:
We do not have definite answers to these questions, and this uncertainty fuels fear. This fear in turn has driven investors to sell large amounts of shares and shift their portfolios to investments which are less volatile. When the market becomes flooded with a supply of shares, and very little demand to purchase, prices tumble.
Does this fall in prices signal a good time to buy shares? The short answer is yes! Does this mean you should pour all your hard-earned money into any diminished value shares you can get your hands on? Not so fast, a few things must be considered first…
This should be the first question you ask before deciding to invest in any market conditions. There are a few things you must consider before you arrive at an answer to this question:
The stock market is where we have seen the most drastic decline and therefore presents the most opportunity. You can choose to invest in the stock market using stock mutual funds which allow you to purchase small pieces of many different stocks (shares) in a single transaction, or you can choose individual stock.
Most believe that opportunities lie largely with foreign markets. While there are more options abroad and historically the local market has been slow to respond to changes in the global economy, there has been a substantive fall in the value of local equity prices. While the drop in share prices was initially due to uncertainty surrounding COVID-19, the decline in economic activity following social distancing measures is likely to impact local businesses and their ability to recover. However, some companies are expected to be more resilient than others. To determine which companies may be more resilient, we examine some key aspects such as:
-A sound Management team which has historically exhibited precise and strategic decision making.
-Strong Financials which show steady revenue, healthy profits, cash flows etc.
-Ability to Adapt
-Capital Structure, such as the debt to equity ratio.
Seeking out and analysing the companies that may have these attributes can be challenging, as is making any investment decision. It is not a road you have to walk alone, Firstline has been working with our clients through the years seeking out investment opportunities in local & international equities, Eurobonds and corporate notes. In these challenging and uncertain times, we will be happy to offer our guidance.