(Provided by Kamaal Morris)
What is the most profitable way of investing into the stock market during an economic downturn? Contrary to what the majority of people think, investing while asset prices are falling is one of the best times to start. Yet if unprepared, it can turn out to be the most consequential time period to begin your journey.
In lots of cases, when most people lose money investing during an economic downturn, it’s promptly due to a lack of quality in their fundamental and technical analysis. With proper fundamental analysis being done, investors can infer based on the backend debt/earnings ratios, product/service adaptation, accessible cash on hand and future income estimates, that what they’re buying into is strong enough to endure an economic crisis. With adequate technical analysis, investors can refer back to past price action as well as current price trends to back up their fundamental analysis and spot any other future bottlenecks that could prevent the asset from growing and producing cash.
With the proper analysis completed, investors will now be able to find their preferred pattern of investing through ‘dollar cost averaging’ (DCA). While getting in during a downturn means you can buy assets cheaper, DCA will allow you to maintain a relatively flat portfolio while having immense upside awaiting you in the next bull run. With this method of investing (DCA) investors never have to attempt to “find the market’s bottom” so they can go all in and ride 100% of the upside. The truth is, unless you’re an insider somewhere, finding the exact bottom is nearly impossible.
In case the economy experiences a “Lost Decade” (the occurrence when asset prices fall and don’t break even until 10 years later), investors will react the same and keep dollar cost averaging; because much like with real estate, true investors understand that investing in anticipation for price increases will be a long term thing.
Overall, the best decision when investing during a pullback is to be diligent, keep another source of income to invest with and continue to invest regardless of how much you’re down.