We are not living in 1929. It is important to remember that when we see the stock market crash and our personal net worth is taking a big hit.
While this has certainly happened, it is important to remember that the stock market is not an economy. We are not on the brink of the next Great Depression. Instead, we have a market plagued by rising inflation (ie, higher commodity prices) that is struggling with supply chain problems caused by an unprecedented global epidemic.
Yes, basic necessities like food and shelter as well as many basic necessities like cars and gas are very expensive. But, while inflation has become real, it is not the whole story of the US economy.
We are also living in a time where the unemployment rate (3.6%) has remained close to historically low levels (where some people would have been allowed to sit outside the labor market for a certain period of time if the number of jobs had not been so high). The picture of labor in the headlines for workers is very rare in American history.
This has led to jobs in retail and service space that pays a one-time minimum wage and offers a minimum wage of $ 15 or more per hour, along with benefits such as free college tuition. Needless to say, these jobs even pay a living wage (it depends a lot on where you live) but the staff situation in these places has improved significantly.
There are struggles in the economy, but this is not a clear picture. A high house price for one person means a house that has gained a lot of value for someone else. And other problems – such as high gas prices and shortages of new and used cars – are associated with relatively short-term problems.
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But what about my investment?
Stock market crash. This is sometimes an indication of a larger economic problem, but the US stock market never fails to recover from its losses – often in fairly rapid periods. It’s cool to see red in your portfolio, but if retirement (or you plan to spend your invested money) isn’t happening now or in the next couple of years, expect a “crash” that can be used to your advantage.
The first thing you should do is evaluate why you own the shares you own. Has there been any change in any of these organizations due to the epidemic? Share prices have not fallen, but has anything changed about the company’s long-term trajectory?
Short-term investors, or perhaps those who are easily intimidated, have used Netflix (NFLX) – Netflix, Inc. Get the report The company has peaked as a sign of slight customer decline. Do you believe this or do you see the streaming leader both going back to growth and better controlling the cost of its content?
Netflix had an explosive growth during the epidemic. Would you rather engage these customers at a pace that spreads things for Wall Street? Are you leaving the service to competitors or people to start reading more?
The reality is that many high-quality companies have suffered major setbacks because they have nothing to do with their business performance. Yes, the epidemic has created some false winners that will not be a long-term success, but it has been avoided by a small number of companies (and many long-term investors because of that possibility).
Now is the time to buy
The stock market has turned into a giant marshal filled with brand names at huge discounts. It may seem counterintuitive to buy when the stock crashes, but isn’t this the best time to buy? If your BMW dealer has too much inventory and offers a sale, it does not change the long-term value of owning a BMW.
And while buying can be a huge opportunity, the reality is that a market crash is not the time to sell (unless you really believe you have a holding that is not a good long-term investment). Yes, many high-flyers have fallen into the world, but that was true in 2008 and history has shown how you can get rich by retaining and buying great companies when prices are low.
Daniel Klein is the managing editor of TheStreet.com