EP 123: Is It A GOOD Or BAD Time To Invest In The Stock Market?

Is now a good or bad time to invest in the market right now?

That is a tricky question... but the answer might be simpler than you think. 

Let's talk about three questions you can ask yourself to identify if it's a good time to invest. 

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In order to define when is a good time to invest in the market, we have to define when is it a bad time to invest in the market?

We hear information from our friends and family, social media, the news... there's a recession... it's a confusing time to figure out.

Let's go back to the 2008 real estate crash. Some banks were going under and there were people walking away from their homes. At this time, they were paying more for their home than it was actually worth.

It was a very bad time for some homeowners.

Many people were saying it was a bad time to be owning or buying a house, that it was a horrible time to get into real estate.

Looking back ten years later, this was actually the best time to buy real estate. At some point during that crash, the market hit a bottom. We then had a great opportunity to buy a property that maybe have been out of your price range before, or purchase additional properties because the price was low.

Let's use the real estate crash as an example to discuss the three questions you should ask yourself before investing. 

When you look at the real estate market between 2008-2009, the market eventually hit a bottom. No one knew when this was going to happen, we couldn't predict it. But eventually the prices of homes stopped dropping. 

If we think about the price of a house and consider how much it could rise or fall....  during the crash, some of prices on these houses got cut in half. $200,000 homes were going for $100,000. Once you hit that 50% drop in price, it's time to ask how much farther can they fall? 

If a $200,000 house is currently at $100,000, do we really think it's going to go much lower? On the other hand, if that house is worth $200,000... it has the chance to back up to that price again. 

There is essentially a ceiling of how high the prices in the housing market can go... but we don't necessarily know how far the prices could fall. Looking at investing in a property that could possibly double in price is a great place to start. 

For this question, we want to consider a specific industry, such as real estate, or a specific utility, like a house.

If we look at the housing market crash, we didn't fundamentally find a new way to live. Houses weren't cheaper because humans were leaving Earth to move to a different planet. So our living habits did not fundamentally change. We still need shelter and a roof over our heads. 

Regardless of a crash or not, houses aren't going to go to $0. The price of houses may not fall farther than the 50% they are already down either. 

When we apply these questions to the stock market, let's first think about how much farther the price of a stock could fall.

If a stock is normally priced at $100, but it falls 50% to $50. While it isn't impossible, do we really think the stock may fall 60%? Or, the price could double and go back to it's original $100 value.  We want think about how much farther could the stock price fall to determine if it's a good choice to invest in. While thinking about this, we want to incorporate question #2: did something fundamentally change?

Look at a company such as Apple. Did we fundamentally change how we use the computer, listen to music, or use iPhones? If the answer is no, did their business fundamentally change?

If we look at Amazon, did we fundamentally change our shopping habits? Do we no longer enjoy two-day shipping? If nothing has changed, the stock is not going to $0. People are still going to enjoy the convenience of ordering something online and having it delivered to their door. 

There are certain stocks that even when at 50% off, there is not much further they can fall, but at the end of the day, they have more upside potential than downside. 

Every month since the crash finally hit the bottom, real estate has been on the rise. If you bought a house close to the bottom price, it would have taken you 6-12 months to see a return. 

Let's compare this to the stock market and the pandemic. The pandemic only really affected the market for about 6-12 months. After this time, the market rose steadily. We are currently dealing with an inflation and many stocks are at a low price, and many of them are at pre-pandemic levels. 

For many of these stocks, we are at the normal course of business.

How long will it take for you to see a return? It could be 6-12 months before inflation is lower. The fed is working hard to manage inflation, but there will always be something affecting the market. 

1. How much farther can the stock price fall? They are already at 50% - they may not fall much farther or at all. But what is the potential upside?

2. Did the company fundamentally change? Some utilities did not. But some did, especially one such as Docusign. Now that the world is opening back up and people are doing business in person, where is the growth for Docusign coming from?

Is it a good or bad time to invest? For a company like Docusign, they could continue to fall lower. People may be cancelling their service with them as they can now get signatures in person. So in Docusign's case, something did fundamentally change.

4. How long would it take to get a return? Keeping with the Docusign example, it may take a long time because they would need to fill a niche again. We would have to suffer through another pandemic and have everyone at home again before their services are direly needed again.

To determine if it's a good time to invest, it depends on the company you are looking at. We need to determine the sector and industry and decide if that area has fundamentally changed. 

Once we have figured that out, we want to work out how long it may take to see a return on your investment. Some stocks may rebound quicker than others.

Don't assume the news knows best or letting negative information get the best of you. Think about how far we've come since the 2008 real estate crash. We won't be in this forever, so what stocks will benefit once the interest rate or inflation comes back down?

Are you going to be one of the people to take advantage of this opportunity?

This is what we do with our members inside Power Trades University. Each week we break down stocks to see if it's time to invest in them. 

Isn't it your time to profit in the market?