Investing in the stock market when it’s down can potentially be a good opportunity, but it requires understanding and acceptance of the risks involved. Legendary investor Warren Buffet once said, “Be fearful when others are greedy and greedy when others are fearful”. In essence, this means buying stocks when the market is down might offer you a chance to buy high-quality stocks at a discounted price. However, this isn’t a universal rule and it doesn’t mean that every stock is a good buy during a downturn.
Markets go through cycles of ups and downs. If you invest when the market is down, and if you have selected quality businesses, you might get the advantage of buying at a lower price and watching your investments grow as the market recovers.
However, it’s crucial to distinguish between a market that is temporarily down and a market that is down due to fundamental problems. If the market is down because companies are losing money and the economy is in a recession, it might not be a good time to invest.
One way to navigate this is by sticking to a disciplined investment strategy that aligns with your risk tolerance and financial goals. An investment philosophy like the Roots & Wings strategy, where ‘Roots’ aim to preserve wealth by selecting companies with low debt, consistent ROE/ROCE & promoter integrity, and ‘Wings’ aim to increase prosperity by identifying growing companies that are resilient and have pricing and staying power in their markets, can be a useful framework.
It’s also important to have a long-term perspective. Short-term market fluctuations can make it tempting to make rash decisions, but it’s the long-term trends that matter more. As Buffet also advised, “Our favorite holding period is forever”.
Investing in the stock market always comes with risk and it’s important to do your research or consult with a portfolio manager or financial advisor before making any major investment decisions.
