Some Millennials and Gen Z-ers found themselves jobless and bored during peak Covid, yet flush with sudden access to cash through stimulus programs and increased federal unemployment payments. And the pandemic-fueled market dip provided an easy entry point to investing.

The casino was open and everyone was winning big. These new investors had less wiggle room when it came to losing cash, but hey, they had never lived through a market crash or recession.

For newbie investors, things are changing fast.

Buying first, asking questions later

About 15% of all current US stock market investors say they first began investing in 2020, according to a Schwab survey — and the majority who opened their first non-retirement investment account that year were under the age of 45 and had lower incomes than other investors, a FINRA study found. In all, about 20 million people have started investing in the past two years.
Flushed with liquidity, “they bought first and asked questions later with meme stocks, SPACs, NFTs. There was a lot of what I call indiscriminate buying,” said Leo Grohowski, chief investment officer at BNY Mellon Wealth Management.

Berkshire Hathaway’s Charlie Munger described the stock market during that period as “almost a mania of speculation,” adding that that “we’ve got people who know nothing about stocks, being advised by stockbrokers who know even less.”

Now, “the casino is closed,” Peter Mallouk, president and CEO of Creative Planning, a wealth management firm, told CNN’s Paul R. La Monica. The mood has shifted within digital communities like Reddit’s WallStreetBets, where young investors gathered during the good times to post memes about stocks only going up. “Turns out investing is kinda difficult when the free money faucet is turned off,” wrote one user, with another adding: “I blew up my savings and portfolio. I don’t even have money to lose more money on the stock market so I’ll be out.”

But seasoned pros say that’s not the way to go. Here’s what they suggest.

Don’t panic, learn lessons and keep going

Investors may be panicking, Grohowski said, but they shouldn’t pull out of the markets altogether.

“Frankly, I hope lessons being learned are ‘buy first ask questions later’ is never a good strategy — and that fundamentals and valuation does matter,” he said. “This will turn out to be a better entry point than exit point for longer-term-oriented investors.”

Certainly “it’s a test” for investors who lose big, Grohowski acknowledged, but he thinks there will be “a better market ahead.”

Other longtime investors have also preached the need for perspective.

“In every bear market, it feels like the end of the world is near while it’s happening,” Ben Carlson, manager at Ritholtz Wealth Management, wrote in a recent note. “In every bear market, we get some technical analyst who makes a 1987 or 1929 analogy using an overlay chart that makes it look like we’re gonna get the mother of all crashes yet again.”

But “every other bear market in history is an epic buying opportunity until the next one,” he added.

How to survive the downturn

Indeed, “when markets become more volatile and weakness takes over from strength, we always remind investors that panic is not an investing strategy,” said Liz Ann Sonders, chief investment strategist at Charles Schwab.

She recommends active investors select stocks by focusing on factors such as cash-rich and low-debt balance sheets, positive earnings revisions and low volatility.

Sharp rallies are par for the course during bear markets, Sonders noted, but investors should be prepared for an extended downturn. “Aggressive Fed policy, the turning of the liquidity tide and slower economic growth will likely keep pressure on stocks,” she added.

Given all of those concerns, “don’t panic” might sound like difficult advice to follow. One way to avoid it is ensuring you have enough resources outside of the market to weather a crisis, said Mark Riepe, managing director of the Schwab Center for Financial Research. If you can hang in without depending on that money in the market, you don’t have to pull out at the bottom and risk missing the inevitable rebound. (Remember, past bear markets have tended to be shorter than bull markets).

The Schwab Center for Financial Research compared the returns of different portfolios during the average bear market and found that investors who remained 100% in stocks as the market touched its low and then rebounded performed better than investors who sold some stock during the downturn.

So, although economic uncertainty abounds, investors should remember that volatility is necessary for better long-term returns on equities, wrote David Kelly, chief global strategist of JPMorgan Asset Management in a recent note. Kelly also advised investors to keep in mind that a diverse portfolio reduces risk, valuations are a good indicator of long-term gaining potential, and to invest with logic not emotion.

“Very often the best time to get invested is when people feel most scared and confused,” wrote Kelly. “In a world of ‘?’s, investing principles deserve an ‘!’.”

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