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Stocks are on sale. That's good news for people who can
afford to invest, but not everyone should be buying.Whether you should buy depends upon your personal
situation, not the price of shares you might want to buy. Think of it this way.
It's Black Friday and a 70-inch television you want has dropped from $700 to
$350. That's a 50% discount which makes buying seem like a good idea.
Know your finances
Before you invest in the stock market -- even one as
enticing as it is now -- you need to fully understand your own finances. The
first thing to consider during the coronavirus pandemic is whether you will
keep your job throughout the crisis. Some fields, of course, have thrived
during the current situation, while workers in other fields may find themselves
furloughed or laid off.Remember
that nobody knows where the bottom is for the market. It's also impossible to
predict when the market or any individual stock will recover. Historically,
markets recover and good companies will come back, but that could take years.
Which stocks should you buy?
A number of very strong companies have seen their share prices fall -- sometimes by a lot. Before buy stocks we should know some points
·
Does this company have the cash
reserves/borrowing capacity to make it through the current crisis?
·
Is the company in a business that
will recover even if the economy enters a prolonged recession?
·
How has management responded to
changed conditions?
·
Has corona virus changed consumer
behavior in a way that may become a long-term change?
Basically, you want to gauge a company's fiscal health
and look at why its share price has declined. You also want to consider how
quickly business will return to normal once the current social distancing
efforts stop and life returns to normal. Cruise
lines, for example, have taken steps to borrow money and reduce capital
expenses to be ready to go back to business once the pandemic passes. That
industry, which I believe will eventually recover, will face a long road back.
Some companies will recover faster
than others. But if you choose to buy, do so for the long term and because you
fundamentally believe in the company's business. There are bargains to be had
and gains to be made. But you should be careful: Only buy what you can truly
afford, and be prepared to hold shares for a long time.